If you're an individual investor, don't count on buying shares of Spirit AeroSystems Inc. during the company's initial public offering.
Most of the stock will be bought up by mutual funds, hedge funds and other institutional buyers, say market observers.
That's been the trend of most IPOs the size of Spirit's, which hopes to raise $500 million according to the company's filing with the U.S. Securities and Exchange Commission on June 30.
It's also a good bet that Onex Corp., the Canadian investment firm that created Spirit last year, will keep a majority of the stock. Onex paid $1.5 billion to buy the Boeing Co.'s commercial airplane-production facilities in Wichita and Oklahoma.
"It will put a firm market value on all of the shares by selling some of them," says Rick LeCompte, professor of finance at Wichita State University. "For a firm like Onex, it gives them a way to show investors what value they've added to the company."
Nigel Wright, managing partner at Onex, declined to comment on what percentage of stock will be available to the public, citing SEC regulations.
The SEC filing states Onex plans to use the IPO proceeds for debt service with the remainder for capital expenditures and other general corporate purposes.
Complying with regulations
The SEC has 30 days to review Spirit's filing to make sure it complies with regulatory requirements. Any disagreements must be worked out before the IPO actually takes place. It's a process that can take several months to complete.
Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. and Morgan Stanley & Co. Inc. are underwriting the offering. It's their job to make sure all the legal, accounting and regulatory questions are answered. They will also determine the final price for the stock, which usually happens the night before the actual offering.
Typically, those firms will have agreements with other investment banking firms to market Spirit's stock as the shares go public.
"It depends on who ends up in the syndicate as to how easy or difficult it's going to be to purchase those shares initially," says Michael Biggs, managing member of the law firm Biggs Wilkerson LC. "It may be possible to place an order through your broker the very same day the company goes public."
Onex officials said their plan was to take the aerostructures company public within five years.
The decision to take Spirit public after one year is a strong indication of Onex's confidence in the company, LeCompte says.
It also takes advantage of investor confidence in the aviation industry. Over the last year, Boeing's stock grew from a low of $62.01 to a high of $89.58. Shares of Lockheed Martin Corp. grew from a low of $58.50 to a high of $77.95.
"From a corporate governance thing, it looks great because these people here (at Spirit) will be rewarded based on their performance as opposed to the performance of the overall Onex," LeCompte says. "If the Wichita plant does great, then the people here should share in that wealth."
Spirit AeroSystems timeline
February 2005: Onex Corp. announces $1.5 billion acquisition of Boeing's commercial airplane facilities in Wichita and Oklahoma.
June 2005: Onex closes deal with Boeing and creates Spirit AeroSystems Inc.
January 2006: Spirit acquires BAE Systems Aerostructures' operations in Scotland and England.
June 2006: Spirit officials file proposal for initial public offering of $500 million in Class A common stock with the U.S. Securities and Exchange Commission.
