The Bank Conversion:
On Tuesday, Oct. 21, 2003, Rainier Pacific offered its stock to the public at $10 a share. The stock started trading at $16 a share and closed its opening day at $16.99 a share. That was up 69.9 percent from its initial offering price. So much for the excitement. Now for the reality.

The offering was not an IPO. It was a bank conversion.

Here’s what the prospectus said:

“We are offering the shares of common stock to those with subscription rights (Got that? Subscription rights!) in the following order of priority:(1) Depositors who held at least $50 with us on December 31, 2000; (2) The Rainier Pacific Bank employee stock ownership plan; (3) Depositors who held at least $50 with us on June 30, 2003; and (4) Depositors with us as of July 31, 2003.”

The prospectus went on to say:

“Shares of common stock not subscribed for in the subscription offering will be offered to the general public in a direct community offering with a preference to natural persons residing in Pierce County and the City of Federal Way, Washington, and, if necessary, a syndicated community offering.”

Concerning the shares not subscribed to, if any, the prospectus added:

“Keefe, Bruyette & Woods, Inc. will use its best efforts (Got it? It’s a best efforts deal, not a firm commitment underwriting!) to assist Rainier Pacific Financial Group, Inc. in selling at least the minimum number of shares shown above (up to 7,935,000 shares), but does not guarantee that this number will be sold. Keefe, Bruyette & Woods is not obligated to purchase any shares of common stock in the offering.”

More fiction and fact from the IPO almanac:

The 180-day lock up period:
Certain of yesteryear’s IPO gurus used to wave big caution flags all over the place about an IPO emerging from its 180-day lockup period. That is the time frame that insiders agree not to sell any of their holdings without prior approval from their investment banker.

The gurus’ theory was the IPO’s price would plunge ahead of the 180-day lockup period. And the reasoning? It was because insiders could or would be unloading their shares in the marketplace. One guru claimed on TV that during the then coming week, Nov. 8, 1999, hundreds of millions of shares would come to market and the marketplace could not handle the volume. He slammed the palm of his hand on the desk in front of him to emphasize his point. But that viewpoint was never substantiated.

“The IPO Outlook” features the IPOs coming out of this lock-up period. The subscribers can note that there is no data showing a sharp decline in an IPO’s price ahead of the 180-day lockup period.

Additionally, investment bankers generally don’t put any credence in this theory. There are two reasons:
* The first is: “Who says that the insiders, generally the company’s top managers, intend to sell their holdings? They can own as much as 80 percent of the outstanding stock.”
* The second is: “If the insiders want to jump the gun on the 180-day countdown, all they have to do it to go back to their investment bankers to put the muscle on them to file for a follow-on offering.”
* Last week was an example of the latter.

On June 11, 2003, FormFactor (FORM: chart) priced its IPO of 6 million shares at $14 each to raise $84 million.

Fast forward: After the close on Friday, Oct. 17, 2003, FormFactor filed to offer another 5 million shares of common stock. The company plans to offer about 1.5 million shares and selling shareholders -- yes, selling shareholders -- plan to offer about 3.5 million shares.

FormFactor’s stock had sold at an intraday high of $27.38 a share that day. It was up 95.6 percent from its initial offering price.

And the 180-day lockup period? That expires on Dec. 8, 2003. It looks as if the holiday season is rolling in early for FormFactor’s insiders.

More fiction and fact:
The Snafu:
On Tuesday, Oct. 21, 2003, one of the leading IPO reporting services made a startling announcement. It claimed that Orbitz (ORBZ proposed) had set proposed offering terms and canned its underwriting team.

It reported that Orbitz would be offering 6 million shares at $11 to $13 each to raise $72 million. The new underwriting team was to be Deutsche Bank, JP Morgan and Pacific Growth Equities.

There was an S/1-A amendment posted for the Orbitz deal on Oct. 21, 2003, with nothing about proposed offering terms, and the underwriting team was the same. It was Goldman Sachs and Credit Suisse First Boston as co-lead managers, with Legg Mason and Thomas Weisel Partners as co-managers. There was this reference to the proposed offering price: “It is currently estimated that the initial public offering price per share will be $22.00.”