Rhea Wessel - freelance writer, author

German Retail Investors Seek to Join IPO Party --- Oversubscriptions Spur Complaints Of How Shares Are Distributed
By Rhea Wessel
Dow Jones Newswires

03/20/2000
The Wall Street Journal Europe
27
(Copyright (c) 2000, Dow Jones & Company, Inc.)

FRANKFURT -- Walter Scheusle had been investing in the German stock market only for six months when he decided to try his hand at an initial public offering.

After seeing dozens of advertisements and hearing colleagues talk up the stock, Mr. Scheusle picked Infineon Technologies AG, the Siemens AG semiconductor spinoff that listed March 13.

The 56-year-old tool salesman put in orders at the four banks where he has accounts, but to no avail. The IPO was 33 times oversubscribed. About one in six small investors got their hands on the hot stock.

"Of 30 to 35 people I know who tried to buy, only one got shares. It's hard to believe that one in six got them," said Mr. Scheusle, a native of Weinheim, a small town near Heidelberg. "Big money stays in big hands," he added. He had planned to sell half of the 400 shares he ordered, putting the rest away for retirement.

Mr. Scheusle isn't alone in his disappointment, and small investors across Germany are beginning to wonder if they'll ever get a decent slice of the IPO pie.

Deutsche Telekom AG's T-Online will be the next big one served up, and angst about fair distribution is already setting in. The Hamburg state court confirmed Friday that it has issued a temporary injunction that keeps Deutsche Telekom from giving preference in the IPO to online subscribers. An advertising-watchdog group filed the petition.

A federal oversight agency, Bundesaufsichtsamt fuer den Wertpapierhan del, said last week that the Infineon IPO triggered a record number of complaints -- it had logged more than 100 by that point. It's considering whether the complaints from empty-handed investors warrant an investigation of the banks involved.

The mass-circulation daily newspaper Bild Zeitung ran a front-page report on the IPO craze last Monday. "An IPO has given all of Germany stock fever," the story said. "And those with good contacts got more shares!" A shareholder-protection group, the Schutzgemeinschaft der Kleinaktionaere e.V., said that Infineon knew that demand was high after the first week of subscription and that they should have made a public announcement.

Infineon used a lottery-like share-distribution system, and said that its choice was fair. Retail investors received 40% of the 174 million shares offered while institutions took 60%. A spokesman for an association representing more than 300 private banks in Germany also said the process was transparent.

Facing the same problem of heavy investor demand in the U.K., dot.com companies there are adopting a different strategy. They award more investors fewer shares, but that still leaves some investors angered. Retail investors received just 35 shares each in the recent IPO for Lastminute.com PLC, arguably the most hyped and eagerly awaited Internet float in the U.K. But in Germany, all eyes are now on T-Online.

The company will float 100 million shares in mid-April, an offering expected to dwarf all European dot.com IPOs. Analysts value the company at up to 30 billion euros.

Dozens of banks are involved in a consortium led by Commerzbank, Dresdner Bank and Goldman Sachs. Book building will run from April 3 to April 12, and shares will first trade on the Frankfurt exchange April 17.

Deutsche Telekom said last week that it has decided how it will distribute shares of T-Online and will announce the process in the next few weeks.

"We will use a transparent and fair process of distributing the shares," a spokesman said.

On Friday, the day the injunction was made known in the press, Deutsche Telekom said that it was looking into the matter.
Prior to the injunction, it had told T-Online's 4.2 million subscribers that they had a better-than-average chance of receiving shares -- provided they completed and returned a satisfaction questionnaire by March 31.

Even though demand is expected to far outstrip supply, Deutsche Telekom isn't holding back the marketing for the T-Online IPO. An advertising campaign has begun, featuring Robert T-Online, a hip youngster who raps about T-Online shares. He beckons investors on television, radio and online to enter the world of Internet-stock fever.

But Mr. Scheusle doesn't need any enticements. Even with the Infineon disappointment, he's sold on the idea of IPOs and plans to throw his hat in the ring for T-Online.

If he is passed over again and again, he says he'll consider a complaint. But for now, he's more interested in learning how to manage his portfolio -- on the Internet.