Tuesday, July 31

Fender goes off-key, cancels its IPO

Fender goes off-key, cancels its IPO

Jimi Hendrix's 1965 Fender Stratocaster is displayed at the Idea Generation Gallery in London.

Fender Musical Instruments Corporation failed to strike a chord with investors. The famed guitar maker scrapped its planned IPO less than two weeks after announcing an offering price.

“Current market conditions and concerns about economic conditions in Europe do not support completing an initial public offering at what we believe to be an appropriate valuation at this time,” CEO Larry Thomas said in a statement. The proposed offering price of $13 to $15 would have valued the company at up to $395 million.

Analysts say Fender’s financials didn’t justify rock-star pricing.

"There wasn’t demand enough for the premium they wanted," said Francis Gaskins, president of IPO Premium.

In 2011, Fender turned a profit on the slimmest of margins, and analysts weren't expecting that to change much this year. "Investors are really looking for growth right now and Fender wasn’t providing that," said Greg Leffert, a research analyst at Renaissance Capital. "It sounds like they would’ve been able to get it done if they cut the price."

"There just wasn't demand at $14 or even at the low end," Gaskins said. Fender executives balked when underwriters suggested a $10 share price, he claimed.

Fender may have been hoping that classic rock fans would have snapped up the stock at its proposed offering price without caring as much about its financials, but the bungled Facebook IPO diminished appetite among retail investors for “brand name” stocks and sentiment-driven purchases.

The other sticking point was Fender’s problematic relationship with Guitar Center, on which it depends for roughly 15 percent of its sales. Despite $2 billion in annual sales, the retailer is saddled with $1.6 billion in debt, $650 million of which carries a 9.9 percent interest rate. Standard & Poor's Ratings Services changed its outlook from stable to negative in May, and its executive vice president of direct brands departed last week after an 18-month stint.

"Once people started looking at that, there were some warts they weren't expecting," Gaskins said. "Right now they’re damaged merchandise."

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