Shares of educational toy maker LeapFrog Enterprises Inc. jumped 22 percent in their first day of trading Thursday, even as the overall market slid.
Priced at the bottom of a $13 to $16 offering range, Leapfrog stock closed at $15.85. About 3.9 million shares traded hands of the 9 million issued in the IPO. The overall market also saw heavy trading volume before the Dow closed down nearly five points.
Emeryville-based LeapFrog has grown its revenue tenfold since 1998, selling $314 million worth of toys in 2001 and earning a profit of $9.7 million. Consumers spent more money on the company's flagship product, an interactive book reader called the LeapPad, than on any other toy in 2001, according to NPD Group., helping the company win 14 percent of the $2.3 billion preschool toy category. Since its inception in 1995, the company has sold more than 5 million LeapPads.
"LeapFrog is one of those few deals that offer investors a successful combination of Old and New Economy," analyst Kyle Huske of IPO Group wrote in a research note.
Still, the company lost $5.1 million in the first quarter of 2002. And it has drawn controversy because it is controlled by a group of investors that includes former junk bond financier Michael Milken, who served prison time after pleading guilty to six counts of securities fraud in 1990. Milken, along with his brother, and Oracle CEO Larry Ellison, owns 33.2 million LeapFrog shares through a company called Knowledge Universe, which took a consulting firm named Nextera public in 1999 at $10. Nextera now trades at about 62 cents.
Milken and Ellison "have been very supportive," LeapFrog CEO Michael Wood told the Associated Press. "All they are interested in doing is building great educational products and concepts."
Knowledge Universe, meanwhile, holds shares with 10 times the voting power of the common shares issued Wednesday, meaning that while it has sold most of its stake in LeapFrog, it retains 83 percent of its voting stock.
The offering raised $99 million for the company after expenses Wednesday. Merrill Lynch & Co. and Salomon Smith Barney were lead underwriters of the offering.
Many market watchers were surprised when LeapFrog decided to go ahead with its offering. Four companies canceled their IPOs this week due to market conditions: Canadian aerospace firm CAE, movie theater chain Cinemark, regional airline Republic Airways and auto insurer Safety Insurance Group.
"Even with a company as attractive as LeapFrog, you can't help but wonder why they feel the need to go public now," Huske wrote. "Common wisdom suggests that the companies able to wait out the negativity in the broader markets should hold out for the prospect of higher valuations."
Caption: LeapFrog founder and CEO Michael Wood,
holding some of his company's toys, raised $99 million
through the stock offering. (Eddie Ledesma/Times File 2001)
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