Agere Systems Inc., Allentown, Pa., the communications semiconductor unit of Lucent Technologies Inc., made it to market with an initial public offering priced at $6 that began trading on the New York Stock Exchange March 28.
Agere had amended its IPO registration March 21 by cutting in half the expected price range to $6-$7 per share from $12-$14. Originally, the anticipated price range was between $15 and $20 per share. Its new filing with the Securities and Exchange Commission also increased the number of shares to 600 million from 500 million
The deal raised about $3.6 billion, far below the $7 billion Lucent had expected, but still the fourth-largest IPO in U.S. history.
Lucent, which now owns 63 percent of Agere, said it plans to divest itself entirely of ownership by Sept. 30 through a tax-free distribution to Lucent stockholders.
As a result of the initial public offering of its subsidiary, Lucent shed from its own balance sheet $2.5 billion of debt that it attributes to its funding of Agere.
“This compares to earlier expectations that Lucent would receive $2.5 billion in value from the IPO beyond Agere’s $2.5 billion debt assumption,” Bruce Hyman, a telecommunications equipment analyst for Standard & Poor’s Corp., said in a statement issued March 28.
Lucent granted Morgan Stanley Dean Witter, lead underwriter, an option to buy 90 million Agere shares. If exercised in full, the option will allow Lucent to erase another $540 million of its debt.
Morgan Stanley scrapped earlier plans to sell 200 million shares of Agere IPO stock, which Lucent had allotted to it in exchange for the investment bank’s assumption of another $2.5 billion in Lucent debt. That swap would have allowed Lucent to retire a significant chunk of its outstanding debt while permitting Morgan Stanley to remove that assumed debt from its own balance sheet.
“Lucent has indicated its willingness to sell or partner its fiber-optic cable business, although the structure, timing and proceeds of such a transaction are uncertain. Still, this could potentially offset the shortfall in value extraction from the Agere IPO,” Hyman said.
“While Lucent has indicated progress in its restructuring and cost reduction programs, it is nevertheless not expected to be profitable over the near term.”
