First Data debut, Albertsons delay show cooling IPO market
NEW YORK (AP) — The largest initial public offering of the year fell short of expectations and the proposed second-largest was postponed in a sign that IPOs are struggling while investors worry about the health of the global markets.
Late Wednesday payment technology company First Data said its IPO priced at $2.56 billion. The offering was by far the largest U.S.-listed IPO of 2015, but First Data had expected to raise hundreds of millions more. Meanwhile Albertsons Cos., the second-largest supermarket operator in the U.S., said it would delay its own offering because of the volatile state of the markets.
Albertsons announced the postponement just hours after competitor Wal-Mart surprised Wall Street with a weak outlook, causing its shares to tumble. Early this month Albertsons projected it would raise as much as $1.7 billion by going public.
Earlier this year companies were going public at the fastest pace in years, but that changed over the last few months as Wall Street worried more and more about the slowing economy in China, the second-largest economy in the world. While the U.S. economy is improving, there are areas of concern affecting it as well: low inflation, falling commodity prices, and the question of when the Federal Reserve will raise interest rates and what will happen when it does.
Kathleen Smith from Renaissance Capital, a manger of exchange-traded funds focused on IPOs, said offerings are now at their slowest pace in four years. And when companies do go public, the returns for companies and their backers have been disappointing: since the start of September, IPOs have priced an average of 17 percent lower than the companies expected.
“Right now it looks like IPO investors are willing to come to the table, but only at discounted prices,” Smith said.
But there’s a positive side to the lower-than-expected prices. Smith said shares of companies that went public with disappointing IPO prices in September are currently providing positive returns, while most companies that have gone public in 2015 are currently trading below their starting prices.
First Data Corp. provides credit card and payment card processing for banks and retailers and sells network and security products. Its offering of 160 million shares priced at $16 each, below the company’s estimate of $18 to $20 a share. The stock closed the day at $15.75, down 25 cents.
According to Renaissance Capital, the offering is bigger than the two next-largest U.S. IPOs put together: Tallgrass Energy GP raised $1.2 billion in May and Columbia Pipeline Partners raised almost $1.1 billion in February. Since then a supply glut has sent energy prices plunging, and they’ve taking energy company profits and stocks with them.
Spokesman Brian Dowling said the company was postponing its IPO “given the recent market volatility.”
Albertsons’ brands include Albertsons, Safeway, and Jewel-Osco, and its annual revenue is more than $57 billion.
Retail giant Wal-Mart on Wednesday said it is bracing for its profit to take a hit as it works to fend off competition from traditional grocers, dollar stores and Amazon.com. The company said its profit will fall in its next fiscal year and sales in the current year will be flat because of unfavorable currency exchange rates. Wal-Mart’s shares on Wednesday fell 10 percent, their biggest drop in almost 30 years, and slipped another 1.2 percent on Thursday.