As Stocks Decline, Firms Find Other Ways to Pay for Growth

Acquisitive companies are scrambling for ways to finance mergers now that market declines have made it harder to use their own stock to gobble up partners, investment bankers said at a merger conference in Beverly Hills last week.

Robert Levitt, managing director of corporate finance for Credit Suisse First Boston Corp.’s Western region, the conference’s host, said Thursday that there is more reliance on bank financing, loans from private firms and other private sources of capital to finance deals.

“This merger train is continuing,” Levitt said. “But we’re going to see more bank financing . . . and even more high-yield once that market comes back. There are still opportunities here.”

Mergers aren’t the only area in which financing is shifting gears.

The initial public offering market took another hit last week, when one of Silicon Valley’s most closely watched young companies pulled a planned IPO, opting instead to raise $40 million from private investors.

Healtheon Corp. of Santa Clara, which plans to use Internet technology to process health-care information, had hoped to raise $51 million last week in an IPO through Morgan Stanley Dean Witter.

But the firm canceled the deal, opting instead to raise much-needed cash from a group of investors led by company founder and Chairman James Clark, venture capitalists Kleiner Perkins Caufield & Byers and New Enterprise Associates.

“The current environment for IPOs and the volatility of the public capital markets did not represent the best opportunity for Healtheon to fund its rapid growth,” said Chief Executive Mike Long. “This funding enables us to continue aggressive investment in the company’s business strategy and support our substantial revenue growth momentum.”

Much of the interest in Healtheon has centered on its backers. Clark also started visual workstation maker Silicon Graphics and Internet software developer Netscape Communications. Healtheon’s venture capital backer is Kleiner Perkins, which also financed Netscape, Amazon.com and other high-tech success stories.

“What we’re seeing now is completely different deal activity from IPOs,” said Gavin Grover, a securities lawyer with Morrison & Foerster of San Francisco. “Companies that were poised for IPOs are getting purchased. We’re seeing more acquisitions and we’re seeing more private-placement activity. People’s risk appetites have changed dramatically.”

Even last week’s successful sale of the largest IPO in U.S. history, a $4.4-billion deal by Houston-based Conoco Inc., failed to usher in a market comeback. On Wednesday, DuPont Co. spun off Conoco, the eighth-largest U.S. producer and refiner of oil, pricing shares at $23. Conoco stock was the most actively traded issue the next day, gaining $1.88 to close at $24.88 a share on the New York Stock Exchange on Thursday. It slipped to $24.50 on Friday.

Conoco, which was founded in 1875, operates in 40 countries. It has come full circle: Conoco was a public company before being bought in 1981 by DuPont.

Despite Conoco’s success, New York-based Web site host Theglobe.com decided to delay its IPO last week after reducing its expected offering price 25%.

Underwriters had planned to sell 3.1 million shares at $11 to $13 apiece but cut the price to $8 to $10 before the deal was put on hold.

“It’s just going to take a lot more time for this market to come back,” said John E. Fitzgibbon, editor of the IPO Reporter, a New York newsletter that tracks the new-issue market. “People are in a state of shock as to what has happened to their stocks.”

Through July of this year, an average of 44 companies went public each month. By August, that number had dropped to 19--and by September it had dried up to just three. So far in October, there have been four IPOs, according to Fitzgibbon.

Later this month, an IPO is expected from Computer Literacy Inc., a Sunnyvale-based seller of technical books and training materials on the Internet. It could raise an estimated $24 million through NationsBanc Montgomery Securities.

One California firm, Mountain View-based Intellisys Group Inc., filed to go public last week with an estimated $20-million deal through Los Angeles-based investment bank Wedbush Morgan. The firm designs, installs and services integrated audio-video systems.

Meanwhile, stock of Inktomi Corp.--one of the year’s hottest IPOs--fell 7% on Friday after the San Mateo-based Internet search company said it will make as many as 1.1 million shares available for sale on Wednesday, raising concern about selling pressure.

Inktomi shares fell $6.13 to $84.44 in heavy trading. The company went public on June 10 at $18.

Inktomi, which runs a popular search engine and makes software to reduce Net congestion, said its lead underwriter in its initial public offering, Goldman Sachs, will release 1.1 million shares that had been restricted from sale. The company also said it will file a registration statement with the Securities and Exchange Commission to offer as many as 3 million common shares for sale.

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Bloomberg News was used in compiling this report. Times staff writer Debora Vrana covers investment banking and the securities industry for The Times. She can be reached by e-mail at debora.vrana@latimes.com.