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October 7, 1999 Webvan Grocery to Delay IPO In Response to SEC Concerns By GEORGE ANDERS and ROBERT BERNER Staff Reporters of THE WALL STREET JOURNAL FOSTER CITY, Calif. -- Webvan Group Inc., an Internet grocery company that had been planning to carry out a massive initial public offering this week, said it will delay the financing in response to concerns raised by the Securities and Exchange Commission. The SEC's gripes are twofold, according to people familiar with the agency's thinking. First, the regulatory agency is concerned that Webvan officials have made themselves available to reporters for BusinessWeek and Forbes magazines recently, despite securities regulations requiring companies to undergo a "quiet period" when preparing an IPO. BusinessWeek last month featured Webvan's chairman, Louis Borders, on the cover of an issue featuring the top 25 personalities of the Internet economy.
Posted at 12:57 a.m. PDT Friday, October 8, 1999 Webvan talks itself out of IPO today For the SEC, too much publicity was apparently too much of a good thing BY MICHELLE QUINN Mercury News Staff Writer Companies know the Golden Rule when planning to go public: Tell all, especially the bad stuff. But companies must work within another regulation: don't get caught saying too much or hyping your business prospects. If you do, you invite the wrath of the Securities and Exchange Commission, the regulatory agency that enforces securities law. This week, Webvan Group Inc. got caught. The Foster City company, which takes grocery orders on the Internet and delivers them to the home, had planned to go public by today, offering 25 million shares at a price of $11 to $13 apiece. But on Thursday, the company issued a statement saying that, after receiving a lot of publicity, Webvan and the SEC had ``agreed to a cooling-off period prior to the commencement of the offering.'' In IPO land, delay is often the kiss of death for a new issue. ``It's pretty scary,'' said Jeff Vetter, a partner at the Palo Alto law firm Fenwick & West.``No one likes an offering to be delayed.'' The SEC requires companies to undergo a stringent ``quiet period'' when preparing for an IPO and to maintain that quiet period for several weeks after the public offering. The rationale is to protect unsuspecting investors from companies that might hype their stock. But during this quiet period, companies also conduct a ``road show,'' traveling around the world to persuade big institutional investors, such as mutual funds and pension funds, to buy the shares. It's an exercise, in part, to see how much interest there is in the stock. Companies often readjust their offering price once they get a sense of the stock's demand. During the road show, company executives are legally supposed to parrot the information in the prospectus, the official SEC-approved document detailing the company's financial history, its business strategy and the risks of investing in it. However, during the road show, companies often reveal information about new customers, alliances and future revenue projections -- information that isn't in the prospectus and the ordinary investor never learns. The SEC frowns on this selective disclosure but has typically turned a blind eye to the practice, either because it rarely catches companies in the act or because it believes institutional investors are more capable of sifting fact from exaggeration. In a bind Given these restraints, companies sometimes complain they are in a bind between giving accurate information about new products or new deals and avoiding the appearance of hype. The SEC, on the other hand, is concerned that companies may time the announcement of new products or partnerships to fuel the demand for the stock. ``The commission is concerned about people working in the gray area of trying to say things and condition the market but not break the rules,'' said David Bayless, former head of the SEC's San Francisco office and now a partner at the San Francisco law firm Morrison & Foerster. ``I think there's a feeling that what's disclosed to an individual is not the same as the institution because the institution is digging'' deeper for information, said Bayless. In Webvan's case, too much publicity was too much of a good thing. Last month, company founder Louis Borders, who co-founded the Borders bookstore chain, appeared on the cover of Business Week magazine. Webvan officials also made themselves available for a Forbes magazine story. Then on Wednesday, TheStreet.com reported what the company was telling institutional investors after a reporter listened in on a road-show conference call -- normally off limits to the public and media. According to the online news service, Webvan executives made a slew of disclosures not available in the company's prospectus, such as Webvan's 12 percent profit margin, far above the 4 percent margin of a typical grocery store. The company also said it will open new distribution centers in Chicago and Seattle, where competitors are stationed. And it said that it purchased a 10 percent stake in a key equipment supplier. The SEC became concerned that Webvan had shared extra information with institutional investors that wasn't in the prospectus, according to the Wall Street Journal. So the agency told Webvan to postpone the offering and disclose more information in a revised prospectus, which would be available to everyone. SEC declines comment The SEC declined to comment Thursday. The clampdown on Webvan's IPO comes at a time when Internet companies, desperate to get publicity in a fiercely competitive market, have been more aggressive about marketing themselves during the quiet period, said Vetter. In fact, some industry analysts have speculated that the publicity from a hot IPO has become the primary reason some Internet companies have chosen to go public quickly. In Webvan's case, the company only began delivering groceries in May. The company hoped to raise up to $325 million to help fund a $1 billion effort to build 26 distribution centers around the country. ``For Internet companies, getting the brand out there is so important,'' Vetter said. Webvan officials wouldn't speak about the delayed IPO, the SEC's concerns or even confirm already public information about the company. But the technology industry was abuzz with the news Thursday and expressed sympathy for Webvan's plight. ``I don't think it's Webvan's fault,'' said Marco DeMiroz, managing director at Piper Jaffray Ventures, a venture capital firm. ``Being a segment leader and a big play, they probably got a lot more press than they expected. And the SEC might have overreacted to it.'' . |