Orbitz, the worst IPO of 2007?

We’re not even halfway through 2007 and I’m ready to make a nomination for worst IPO candidate of the year: Orbitz.

You may recall that Orbitz – the online travel site founded by five major airlines in 2000 – went public at $26 a share in 2003. It filed documents Thursday to go public again. But the Orbitz of 2007 is very different from the Orbitz of old.

A lot has happened since that first IPO. Nine months later, Cendant bought Orbitz for $27.50 a share. Cendant rolled Oribitz into its online-travel segment, named Travelport, and sold it to private equity giant Blackstone Group last summer. Now Blackstone and Travelport want to spin off Orbitz to the public market.

Orbitz isn’t a bad company, and there’s nothing wrong its spinoff. The problem is how it’s being spun off. It’s happening way too early, and with little consideration of Orbitz itself or its future shareholders.

Look through the financials in the prospectus. As Paul Kedrosky pointed out on his blog, “these are absurdly complex financials with difficult historical comparables.” After so many deals and restructurings, only its name hasn’t changed.

But there’s one simple thread running through Orbitz’ financials: Any way you slice it, the company had a net loss and an operating loss in 2004, 2005 and 2006. It used to be companies in the red couldn’t get through the IPO gates. Now most are, but they’re not doing so hot afterwards.

That’s okay, because as a fund manager buying a big stake in Orbitz, you’ll have some say in how it’s run, right? Wrong: As the prospectus says, “Travelport’s controlling holders will continue to control us and may have strategic interests that differ from ours or yours.”

So let’s see – no voting rights, a history of losses, a financial statement complex enough that a doctoral student could base a dissertation on it, and more plastic surgery in the past three years than the Gabor sisters combined – what’s not to like?

But wait. IPOs can raise capital to help companies expand with new staff, marketing and R&D. So surely Orbitz will benefit from that?

Wrong again. Take a look at this document, marked “confidential” but posted for all to see on Travelport’s investor-relations site. It’s from a presentation Travelport CFO Mike Rescoe made at a UBS investment conference Wednesday. On page 11, it notes that the IPO will happen by October, then says this:

“All net proceeds will be used to pay down Travelport OpCo debt. In addition, Orbitz will raise debt at its OpCo level, a portion of which is also expected to be used to pay down Travelport OpCo debt … We expect the Orbitz related transactions to result in a $1.3 billion paydown of Travelport OpCo debt.”

This latest Orbitz IPO is a lamb being rushed to the sacrificial altar simply to pay off Travelport’s debt. Why is Travelport in such a hurry? The answer may lie on page 12 of the UBS investors presentation:

“Additional potential paths to drive additional debt repayment include (i) follow-on sale of Orbitz shares and (ii) IPO of a combined Travelport/Worldspan and GTA business, among others.”

In other words, after wringing Orbitz dry through initial and secondary offerings and new debt, Travelport will take itself public. Travelport’s biggest and most profitable business is Galileo, which started out as Europe’s answer to Orbitz, but now includes data from nearly every airline in the world.

Given how cavalier the markets have grown about IPOs, I don’t blame Blackstone for this gambit. I actually admire its boldness. As for anyone bold enough to buy into this IPO, the payoff isn’t anywhere as sure.

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