(Reuters) - This year’s largest initial public offering was priced at a discount, while the second’s biggest was delayed, as payment processor First Data Corp (FDC.N) and supermarket operator Albertsons Companies Inc (ABS.N) faced a choppy market.
Despite other companies, such as luxury department store operator Neiman Marcus Group Inc, delaying their listing, First Data and Albertsons had planned to press ahead with plans to price their IPOs on Wednesday. Investors have been giving most IPOs a cold reception since the stock market plunged in August.
To go through with their IPOs, companies have had to discount them heavily to make them attractive to risk-averse investors. While some IPOs have proved to be good bargains based on how their shares have traded following their listing, the bruising experiences of many companies are expected to deter more IPO hopefuls in the near future.
“Since labor day, IPOs have priced on average 18 percent below the midpoint of their range, returning 16 percent for investors. In order to get those positive returns, prices are being slashed,” said Kathleen Smith, a managing director at investment banking boutique Renaissance Capital LLC.
Investors’ reaction to First Data and Albertsons show that more companies will likely hold back from launching IPOs or continue to discount them if they go ahead with them, Smith added.
First Data, controlled by private equity firm KKR & Co LP (KKR.N), was hoping to raise as much as $3.7 billion. It raised $2.56 billion by selling 160 million shares at $16 per share, below its previously indicated $18 to $20 per share range. This gives the company a market capitalization of $14 billion and a value of $35 billion when debt is included.
Albertsons, backed by buyout firm Cerberus Capital Management LP, decided to delay the pricing of its IPO. It was hoping to raise as much as $2 billion, but a disappointing Wal-Mart Stores Inc (WMT.N) outlook on Wednesday weighed on investor sentiment and drove Albertsons peer Kroger Co’s (KR.N) shares down 3 percent on the day.
Albertsons initially hoped the delay may last a day, but now sees it as unlikely that its IPO will price in the short term, at least not until markets become more favorable, according to one source familiar with the company’s thinking who requested anonymity to discuss the deliberations. Albertsons did not respond to a request for comment.
“It is important to maintain momentum throughout the process. Companies that ride the momentum all the way usually get to the pricing they want,” said Neil Dahr, who leads the capital markets practice group at PricewaterhouseCoopers LLP.
First Data, Albertsons, and other private equity-owned companies have been keen to launch their IPOs so they can pay down some of the debt they were saddled with following their leveraged buyouts.
Next week, Italian luxury carmaker Ferrari is scheduled to price its IPO in the United States in a range of between $48 and $52 per share, which could value the company at up to $9.8 billion.
Earlier on Wednesday, mobile payments company Square Inc registered with U.S. regulators for its long-expected IPO, in a test of CEO Jack Dorsey’s ability to take the company public even as grapples with a turnaround at Twitter Inc (TWTR.N), which he also runs. The company has not disclosed a timeline for the offering.
Additional reporting by Greg Roumeliotis in New York; Editing by Bernard Orr