Fire Your Underwriter

In its rush to go public, B2B incubator Divine Interventures didn't let anyone stand in the way.

Maybe underwriters don’t call all the shots. When Divine Interventures chairman and CEO Andrew “Flip” Filipowski’s lead underwriter, Credit Suisse First Boston (CSFB), told him last April to postpone his Internet incubator’s initial public offering until fall, the CEO fired the investment bank and found one that would go public on his timetable.

Such drama “definitely doesn’t happen very often,” says Yusuf R. Haque, an analyst with IPOMaven, noting that CSFB is considered one of the top underwriters in the country.

The falling-out with CSFB was just the beginning of Divine’s quirky journey to Nasdaq. Besides its frequent pricing fluctuations, ranging from $350 million in February to $140 million in April and back up to $200 million in June (when FleetBoston Financial’s Robertson Stephens unit replaced CSFB as lead underwriter), the offering was also delayed by Filipowski’s violation of the pre-IPO quiet period–in an interview with the Chicago Tribune.

When the stock finally traded on July 11 at $9, below its June range of $13 to $15, it had to use a temporary trading symbol, TEMPV, because the latest version of paper prospectuses hadn’t been delivered to investors in time.

Why the rush? Although Divine CFO Michael P. Cullinane would not comment, citing quiet-period regulations, the company’s late June Securities and Exchange Commission filings show that a much larger private- placement round hinged on going public before August. Aon Corp. had promised to buy $25 million worth of shares if the company made it to market by July 29 and raised at least $120 million, while network provider Level 3 Communications had agreed to accept $25 million in stock as payment for services as well as make a $25 million investment under the same stipulations.

Microsoft Corp. also participated in the round, and now owns an 8.52 percent stake in Divine. In total, Divine gained more than $218 million in the separate issue of stock, in addition to the more than $128 million it garnered from the public offering.

The stock’s performance has been generally lackluster, dipping below 7 in August. However, says Charles J. Kaplan, president of Equity Analytics Ltd., a Long Island firm that advises companies on the IPO process, “they put away the deal in a tough market, so they didn’t lose. The proceeds were not what they desired or initially expected, but they put away the deal. That’s what counts in the end: they got the money.”

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