IPOs, Initial Public Offerings: pre & post IPO

Cisco Targets Ruckus Wireless — Avoid Ruckus

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Ruckus Wireless priced its IPO at $15, range high, on Friday, November 16, 2012.  It immediately traded down and in the last half hour of trading lost about $1 to close at $12.25, down 18.33%, the second worst first day drop this year.  quote

In the S-1 pre-IPO filing Ruckus did identify Cisco as a competitor in an S-1 dated November 5, 2012.

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“Our competitors include Cisco Systems, Ericsson, Hewlett-Packard, Motorola and Aruba Networks. We expect competition to intensify in the future as other companies introduce new products into our markets. This competition could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses and failure to increase, or the loss of, market share, any of which would likely seriously harm our business, operating results or financial condition.”

Reuters announced Sunday, November 18, 2012 that “Cisco to buy cloud-networking start-up Meraki for $1.2 billion” Reuters, November 18, 2012.

The deal will allow Cisco to offer alternative solutions to traditional Wi-Fi deployment models like smaller competitors, such as Aruba Networks and Ruckus Wireless, which debuted on Friday (November 16, 2012).

It’s very hard to believe that the underwriters did not know by Thursday evening November 15, 2012, when Ruckus priced, that the Cisco/Meraki deal was in the works.

Large Ruckus customers will probably freeze their purchase commitments to Ruckus while they evaluate the competitive offering from Cisco.

Ruckus can pretty much kiss goodbye any rosy projections they may have made to the investment community through their investment bankers.

The lead investment bankers for Ruckus were Goldman, Morgan Stanley, and  Deutsche Bank.

Morgan and Goldman were the two lead bankers for the Facebook IPO.

Morgan and Goldman probably pulled another “Facebook” where they orchestrated an IPO but….
(1) In the case of Facebook they probably knew growth was slowing and that FB would should a big loss for the June 2012 quarter, which ended less than 45 days after the IPO.
(2) In the case of Ruckus wireless, those two investment bankers must have known through the grapevine (at least) at least that Cisco was closing on the Meraki deal, because…
…Morgan and Goldman were in the group of lead underwriters for a $4 billion Cisco debt financing on March 3, 2011, and Wall Street bankers are in constant contact with their big underwriting clients, such as Cisco.
(3) Those $1.2 billion acquisitions take months to close and involve lots of work by investment bankers and others.  In spite of what you’d like to believe, Wall Street is not very good at keeping secrets.

Investors right now should avoid Ruckus Wireless as if has the plague.

A case can be made, in fact, that the Ruckus Wireless IPO should have been postponed pending the public news release of Cisco’s acquisition of Meraki, which was announced before the second day of Ruckus trading, which is Monday, November 19, 2012.

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