By Michael Tsang and Nikolaj Gammeltoft
Jan. 22 (Bloomberg) — Symetra Financial Corp., owned by Warren Buffett’s Berkshire Hathaway Inc., sold shares at the low end for its initial public offering as investors won concessions from three other companies in the first U.S. IPOs of 2010.
Symetra, the Bellevue, Washington-based insurer, raised $365 million selling 30.4 million shares at $12 each yesterday, after asking for as much as $14 apiece. Cellu Tissue Holdings Inc. cut its price by 24 percent and Chesapeake Lodging Trust raised 40 percent less than it sought when investors rejected its IPO last month, while Terreno Realty Corp. pushed back its offer until next week after reducing its deal size by a third.
The first offerings of 2010 show that buyers are still demanding better terms after six deals were shelved in November and December. While U.S. companies are projected to raise three times as much money from IPOs this year compared with 2009, almost 40 percent of the sales in the past six months left investors with losses, data compiled by Bloomberg show.
“This reflects that the U.S. IPO market is very selective right now,” said Josef Schuster, the Chicago-based founder of IPOX Capital Management LLC and manager of the Direxion Long/Short Global IPO Fund, which will start in March. “Investors are evaluating the issues on a deal-to-deal basis, the higher quality names and bigger brands do better but no one is willing to buy whatever comes out.”
American companies may raise as much as $50 billion through initial offers this year, after deals recovered during the biggest stock-market rally since the Great Depression, estimates from London-based Barclays Plc and Bloomberg show.
White House, China
A 65 percent rebound in the Standard & Poor’s 500 Index from its low in March also prompted buyout firms to use IPOs to return cash to investors after fundraising shrank to a six-year low, helping turn the end of 2009 into the busiest period for new sales in almost two years. The S&P 500 tumbled 1.9 percent yesterday, the most since October, as the White House proposed to reduce risk-taking at banks and speculation grew that China will take more steps to slow economic growth.
Symetra will start trading today on the New York Stock Exchange under the ticker SYA. The company, 53 percent owned by Berkshire and White Mountains Insurance Group Ltd. before the sale, originally offered 27 million shares at $12 to $14 each in the first IPO from a U.S. life insurer since 2004, filings with the Securities and Exchange Commission show.
While Symetra sold 3.4 million more shares in the offering than it planned, the IPO price of $12 indicates some buyers weren’t willing to pay up to invest alongside Buffett, the world’s second-richest man.
Book Value
Based on the original terms, the midpoint price of $13 would have valued Symetra at about 85 cents for each dollar of net assets, a 21 percent premium to the median book value for 24 U.S. life and health insurers, data compiled by Bloomberg show.
Symetra, which sells group medical insurance that covers employees’ prescriptions and doctor visits, as well as annuities and life insurance, sold a 27 percent stake in the IPO, assuming a total of 113.43 million outstanding shares. The company will receive 68 percent of the proceeds before expenses, with selling shareholders, which include New York-based private-equity firm J.C. Flowers & Co. and Bruce Berkowitz’s Fairholme Capital Management LLC in Miami, getting the rest.
Berkshire of Omaha, Nebraska, and Hanover, New Hampshire- based White Mountains kept their stakes.
Bank of America Corp. in Charlotte, North Carolina, New York-based JPMorgan Chase & Co. and Goldman Sachs Group Inc. and Barclays Plc of London were the lead underwriters for Symetra’s sale. For legal counsel, Symetra turned to Cravath, Swaine & Moore LLP, which was led by William J. Whelan III.
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