x
IPOs

Vonage Files for $250M IPO

Vonage Holdings Corp. (NYSE: VG) Wednesday filed for a $250 million initial public offering and revealed that it has tapped former Tyco International Ltd. (NYSE: TYC; London: TYI) executive Michael Snyder to replace its long-time CEO, Jeffrey Citron.

Later this month, Citron will become Vonage's chairman and "Chief Strategy Officer." (See Vonage Appoints CEO, Chairman.)

The principal underwriters of the IPO are Citigroup , Deutsche Bank AG , and UBS Investment Bank .

According to the SEC filing, Vonage's largest shareholder is Citron, who with five other institutional investors has invested an aggregate of $394.5 million since the company was born four years ago. More on that in a moment.

Vonage announced its intentions to hold an IPO last year, but the company subsequently held discussions with several potential acquirers. (See Vonage Hearing Buy-Out Bids.) Citron reportedly never heard the Skype-style valuation he was looking for, and now is apparently defaulting to the IPO exit plan. (See EBay Buys Skype for $2.6B.)

Investors have been mainly cool on telecom IPOs of late, and with Vonage’s high marketing costs and low margins, the trend may continue. (See Telecom IPOs Rare in 2005.) During 2004 and the first nine months of 2005, the company spent $232.4 million on customer acquisition. (See BellSouth Launches Residential VOIP.)

Vonage lost $190 million on revenues of $174 million for the nine months ended Sept. 30, 2005, compared to a loss of $43 million on revenues of $50.4 million during the same period in 2004.

The company has 1.4 million subscribers, and consumer acceptance of VOIP is expected to grow rapidly in the next few years. That will help Vonage, which has one of the best-known brands in the space. (See Cable Is the Voice of VOIP.)

Of course, being the best known brand comes with a cost. Between 2003 and 2004, Vonage's marketing expenses jumped by 374 percent, to more than $56 million "primarily due to the increased costs related to online, television, print and radio advertising," according to the company's S-1 filing.

But Vonage faces serious competition from other standalone VOIP providers, incumbent telephone companies that control their own networks, and cable providers that are looking to add VOIP as part of a bundle of services. Vonage, with no video or Internet service offerings, also competes with eBay's Skype unit, which offers free phone calls via the Net to other Skype users. (See Vonage Raises $250M.)

In additon to a broad field of competitors, Vonage has some concerns about current CEO's past.

Citron, while affiliated with Datek Online Holdings Corp., an online brokerage firm, was accused by the SEC of participating "in an extensive fraudulent scheme involving improper use of the Nasdaq Stock Market's Small Order Execution System, or SOES," according to Vonage's filings with the SEC. "Mr. Citron and other individuals entered into settlements with the SEC in 2002 and 2003, which resulted in extensive fines, bans from future association with securities brokers or dealers and enjoinments against future violations of certain U.S. securities laws."

This only matters, as Vonage explains in its filings, because Citron's ownership of a large chunk of Vonage -- and his participation in the company as an executive -- have spooked some on Wall Street. "We believe that some financial institutions and accounting firms have declined to enter into business relationships with us in the past, at least in part because of these matters," Vonage states in its filings.

Vonage spokeswoman Brooke Schulz told Light Reading her company isn’t commenting on either the IPO or on Jeffrey Citron’s move from the CEO position.

— Mark Sullivan, Reporter, Light Reading

Stevery 12/5/2012 | 4:06:51 AM
re: Vonage Files for $250M IPO We were suprised at the frankness of Vonage's SEC filing on the subject of CEO Jeffrey Citron's past run-ins with the SEC. Was Citron's stepping aside as CEO a condition of going public imposed by the underwriters?

Probably inexplicitly. I think it was a given that no one respectable would touch the deal with him in charge. So it had to be prepackaged with an expectation that the board was serious about having a first-rate set of credentials.

Anyone know for sure?
Mark Sullivan 12/5/2012 | 4:06:51 AM
re: Vonage Files for $250M IPO We were suprised at the frankness of Vonage's SEC filing on the subject of CEO Jeffrey Citron's past run-ins with the SEC. Was Citron's stepping aside as CEO a condition of going public imposed by the underwriters?
Mark Sullivan 12/5/2012 | 4:06:51 AM
re: Vonage Files for $250M IPO The burning question here is what the investment community will make of Vonage's chances in a tightening consumer VOIP market. What will be the price of Vonage stock at open? At close of the first day of trading?
chip_mate 12/5/2012 | 4:06:50 AM
re: Vonage Files for $250M IPO stevery,
i usually find nuggets of semi-value in your statements, but come on.
Here's my take on Citron.
History lesson:
1) Henry Ford was the scourge of Detroit after using his money from his second company to fund a super car, which is NOT what the investors wanted.
2) Otis Elevators. Go read. Otis lost multiple businesses before he figured out he should take a stab at the new fangled elevator business.
3) Hershey. That's business 101 on how many times Milton failed before he found his business footing in sweets for the American public.

If any of these visionaries had to deal with your brand of scrutiny, they would all have spent their lives as clerks for Western Union.

VC 101: the guy who starts the service has to give up the helm to an industry exec if the guy who started the service wants to get the VC money. If not at first, then surely before the exit is announced, be that sale to bigger fish, or sale to wall street.

please take your citron view (that you got from some industry rag like fortune or forbes or financial times or wall st. journal) and put it aside.
what is happening is completely natural and normal and in the best interest of vonage and the financial institutions that are purchasing the bulk of their shares.
Stevery 12/5/2012 | 4:06:49 AM
re: Vonage Files for $250M IPO
Chip-mate:i usually find nuggets of semi-value in your statements...

Then obviously you misunderstood me. :) I will be the first to admit sitting atop a high horse. But I don't think that's the case here.


[historical list of biz guys who achieved both big successes and lesser-known failures]

If any of these visionaries had to deal with your brand of scrutiny, they would all have spent their lives as clerks for Western Union.


Citron was not a matter of a few bad biz decisions around a home-run biz decision. It was a matter of financial dishonesty that earned him a ban by the SEC. Given that he's flouted SEC rules once, why would any investor believe the 10-Q/K that he would sign?

VC 101: the guy who starts the service has to give up the helm to an industry exec if the guy who started the service wants to get the VC money. If not at first, then surely before the exit is announced, be that sale to bigger fish, or sale to wall street.

VCs have lots of reasons to dump founders, but it has more to do with control than building a successful business. Try circulating a deal with lots of competition to get in, and the leader will remain post-deal. (Bezos, Intel, Gates, Jobs, to name the big counter examples, but there are lots of others.)

You will find cases where a company outgrows the capabilities of those who started it (cisco?), but that usually involves statements more like "pursuing other interests" and less like "He was banned from associating with securities brokers by the SEC. As a consequence, we've lost deals in the past".

Also, I note that a CEO swap a few days before IPO is not exactly the best path to convince people that they are investing in a stable ship.

please take your citron view (that you got from some industry rag like fortune or forbes or financial times or wall st. journal) and put it aside.

While Datek worked out nicely for me personally, it does leave me wondering what got left on the table.

what is happening is completely natural and normal and in the best interest of vonage and the financial institutions that are purchasing the bulk of their shares.

On this we agree, but for different reasons.
geof hollingsworth 12/5/2012 | 4:06:46 AM
re: Vonage Files for $250M IPO A wise person put it well when this topic was discussed last year (see http://www.lightreading.com/bo... )

This isn't a matter of backing someone who has failed in the past. Many of us do that all the time. This is an issue of requiring that companies that wish to avail themselves of the privelege of limited liability and of access to US capital markets must be run by executives that are not (and do not associate with) crooks.

Big difference.
HOME
Sign In
SEARCH
CLOSE
MORE
CLOSE