Decision time is nigh on Digicel’s IPO

Crunch time is approaching for Digicel’s planned initial public offering (IPO) on the New York stock exchange. Denis O’Brien hopes it will raise it about $1.8 billion with a price range of between $13 and $16 a share.

The rumour is that the company will price its shares in the next day or so and list before the weekend. If Digicel gets its flotation away, the company will be launching in some decidedly choppy waters. There were five IPOs in new York last week. All five were ultimately priced well below the initial ranges sought.

Edge Therapeutics came in 27 per cent below the midpoint of its range, while Performance Food Group missed the midpoint of its range by 19 per cent. Surgery Partners fell 22 per cent short, Novocure was out by 20 per cent, while Mirna Therapeutics missed its midpoint by a full 50 per cent.

Digicel's price range is ambitious to say the least. O'Brien has repeatedly demonstrated his ability to grow company at a frightening rate since its launch in Jamaica more than 13 years ago, but it is coming up against stiffer competition as it moves into cable television and broadband services.

It is also facing currency woes caused by the strengthening dollar, which makes its $6.5 billion debt pile (about $5.2 billion post flotation) harder to pay back. It is also heavily dependent upon its performance in three unpredictable markets: Papua New Guinea, Haiti and Jamaica.

O’Brien, however, remains a big draw. Investors may still be prepared to buy in to its IPO purely on the back of his reputation. The critical question, however, is what price are they prepared to pay?

If Digicel’s IPO, like most of last week’s efforts, can tempt investors to pay only about 20 per cent below the midpoint range, then O’Brien will have to settle for just $11.60 a share and total proceeds of only $1.4 billion.

He will then face a choice between either selling a larger chunk than the 40 per cent initially mooted, pulling the flotation, or going ahead with it anyway and coming up with a new plan to fund the acquisitions it desires.

Either way, it will be a big week for Ireland’s richest man and the company that is the source of much of his wealth.