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What's Up With ONI's IPO?

Light Reading
News Analysis
Light Reading
5/24/2000

After being postponed for the second day in a row, questions started to emerge about optical networking company ONI Systems' http://www.oni.com (proposed Nasdaq symbol: ONIS) attempt for a blockbuster IPO. Demand for the stock was described by several sources as high, so the delays were not likely to be related to the lack of demand or due to market conditions. One source from an investment bank not underwriting the deal said the Securities and Exchange Commission (SEC) had delayed the IPO with its "commentary" on the S-1 filing, which is required to be released by the federal agency before the issue can start trading. ONI today filed an amended S-1 statement, indicating that company officials may be working with the SEC. An SEC spokesperson said the agency "does not comment on current filings." During a filing period, the SEC often engages in a private dialog with the company to ensure their filing is in compliance with U.S. securities regulations.

A spokeswoman at Goldman Sachs Group Inc.http://www.gs.com (NYSE: GS), the lead underwriter for the offering, said that they "expect to price the deal tonight [Wednesday]."

[Update: as of Thursday morning, the deal had not been priced]. ONI hopes to sell 8 millions shares of stock in a price range of $21-$23. With demand for optical networking companies strong, it is expected that the shares would trade to $50 or higher once on the open market, giving the company a valuation in the range of $6 billion, with 124 million shares outstanding. ONI Systems had not yet returned requests for comment at press time.

Even if the deal is priced by the underwriting investment banks on Wednesday night, the SEC would have to release the filing on Thursday morning in order for shares to begin trading.

ONI's IPO is being closely watched within the networking industry. The company's relationship with Williams Communications Group http://www.wilcom.com (NYSE: WCG) became the topic of discussion after the S-1 filing revealed that Matthew Bross, Chief Technolology Officer of Williams, was a major shareholder in ONI. Williams is ONI's primary customer and Bross, who makes technology buying decisions for Willams, owns options on 322,000 shares in common and preferred stock (see Williams' CTO Profits From His Position ). He stands to turn those shares into a multimillion-dollar position in the event of an IPO.

--By R. Scott Raynovich, Executive Editor, Light Reading

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