Business Blog: Hoover’s Business Insight Zone

Travel-booking site Orbitz has a famous consumer brand but an iffy business; MF Global has a nondescript name but a deep corporate history (MF stands for “Man Financial”). Neither of them did well in early trading last week.

How badly did they do? Against an proposed offering price between $16.00 and $18.00, Orbitz shares were actually offered at $15.00, but they opened trading at $14.90 and closed the first day (Friday) at $14.50. (As I write this on Monday morning, shares are at $14.25.) When you’re talking about 34 million shares, there’s a big difference between opening at $14.90 and $16.00, much less $18.00. MF Global’s offering, likewise, took it on the chin: With a proposed offer price between $36.00 and $39.00, the actual offer price was much lower, at $30.00, and the shares opened trading on Thursday at $29.37. Shares closed trading on the first day at $27.55, and as of now they’ve gone even lower, to $26.58. In this case, we’re talking about 97 million shares. Ouch.

Why did these two issues open so weakly? We discussed the problems with the Orbitz offering here, and I think all of the reasons mentioned still stand. Orbitz has changed hands repeatedly in recent years, such that it’s very hard to get an apples-to-apples comparison of how the company’s been doing over time. And the structure of the IPO won’t much help the company make its way in the world, since the proceeds will clean up its parent company’s balance sheet, rather than financing Orbitz’s ongoing operations. Not saying there’s anything wrong with the service that Orbitz provides to consumers — but investors have voted with their dollars, and so far they’ve said that this one doesn’t excite them much.

As for MF Global, the problem here is much more interesting because it potentially runs much deeper. The consensus seems to be that the IPO flotation didn’t do well because of growing fears that financial markets are beginning to face a credit crunch. In other words, it’s going to get harder across the board to borrow money, which is far from good news for a company like MF Global, whose bread and butter comes from brokering credit and derivatives.