La Brea Bakery Uses Private Stock Offering to Raise Dough

While these days it seems that any company related to the Internet grabs headlines and investors’ attention, a little Los Angeles company is hoping to go big-time with one of life’s staples: bread.

In an effort to capture a larger slice of the $6-billion specialty bread market, La Brea Bakery of Los Angeles is in the midst of a major expansion--after raising $10 million from a private institution--to become the largest artisanal, or specialty, bakery in the United States.

After quietly spinning off from upscale Los Angeles restaurant Campanile last year (the two were part of a general partnership), La Brea is taking its bread to the nation by building a plant in Van Nuys to produce “parbaked” versions of its loaves. Parbaked bread is dough that has been 80% baked and then quick-frozen for baking later.

The new facility, scheduled to open by the end of the year, would initially employ nearly 100 people, said Manfred Krankl, president and chief executive of La Brea Bakery.

La Brea’s olive, rosemary, chocolate sour cherry and fig breads can be found at more than 600 retail locations, including about 300 Western U.S. Starbucks and Ralphs grocery stores. Sales were $13 million last year and are forecast to reach $15.5 million this year. The new factory is expected to strongly boost revenue in 1999.

“The bakery has dramatic ability to grow, and the restaurant can only grow so much,” said Krankl, who holds an 8% stake in the bakery. “The response has been pretty remarkable.”

Nancy Silverton, who opened La Brea Bakery in 1989, also owns the adjacent Campanile restaurant on La Brea Avenue with her husband, Mark Peel. The two also worked together at trendy Spago, where Peel was Wolfgang Puck’s head chef.

La Brea makes most of its breads at a facility on Washington Boulevard in Los Angeles. That site will continue to be the hub of the firm’s fresh bread business, Krankl said.

To structure its $10-million private placement with the U.S. subsidiary of Industrial Bank of Japan, La Brea tapped investment firm Houlihan Lokey Howard & Zukin, a Los Angeles company known for its expertise in calculating the fair value of a business.

“We took a look at the situation and recognized what needed to happen for them to grow,” said Scott Adelson, a managing director with Houlihan and a member of La Brea’s board. “Now they are busily implementing the expansion plan. There’s a lot more that can happen here.”

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A private placement is a sale of stock, bonds or other securities directly to an institutional investor, such as an insurance company. These deals can be done for various reasons, including restructuring debt into equity or because a company is not ready to go to Wall Street and sell stock to the public, either because it doesn’t have a track record or is too small.

Through June, nearly $10 billion had been raised through equity and debt private placements by California companies, compared with $5.1 billion the previous fiscal year, according to CommScan, a New York data firm.

The larger private placements this year include a nearly $1.3-billion convertible debt deal by Irvine-based Western Digital Corp. in February, nearly $900 million in high-yeld debt raised by Palm Desert-based U.S. Filter in May and more than $1 billion of high-yield debt raised in May by Santa Barbara-based Tenet Healthcare, according to CommScan.

Meanwhile, the climate for initial public offerings turned ugly again last week, reflecting the broad weakness of the overall market--especially for small-company stocks.

IDG Books Worldwide Inc., the Foster City-based publisher of the “For Dummies” guides, was the one bright spot in the IPO market, raising nearly $50 million on Tuesday by selling stock at $15.50 a share. The stock rose as much as 11% in its first trading day but ended the day up just 5.9%.

Palo Alto-based Echelon, which sells hardware and software to support control networks, raised $35 million Tuesday by selling stock at $7 a share. But it closed unchanged. Los Angeles-based Team Communication priced last week at $5.50 a share, the low end of its expected range.

Typically, IPOs post significant gains in their first trading day, which compensates investors for the greater risks of buying the new offerings. For the year, IPOs nationwide have seen an average first-day gain of about 15%, according to Securities Data.

Several companies followed the example of San Francisco-based Del Monte Foods Co., the world’s largest producer of canned fruits and vegetables, which decided to yank its $250-million IPO planned for last week until conditions improve.

Despite the rocky market, other California companies filed with the Securities and Exchange Commission to go public.

Cupertino-based Audiohighway.com provides content from organizations such as National Public Radio and Penguin Books USA on the Internet. The company said it plans to sell 2 million units consisting of common stock and warrants at $12 to $15 each. In 1997, it reported a loss of $3.8 million.

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Skechers, the Manhattan Beach-based maker of contemporary active footwear, last week filed to raise $115 million in an IPO through BT Alex. Brown & Sons and Prudential Securities Inc. The money would be used to repay debt.

For the three months ended March 31, the shoe designer and marketer reported sales of $59.9 million, compared with $27.6 million the previous year. For the same period, it reported a profit of $1 million, contrasted with a loss of $899,000 the same time last year. For 1997, Skechers had a profit of $11 million.

And the 14-member board of Los Angeles-based Korn/Ferry International, the biggest executive-search firm in the U.S., approved plans to go public and promoted three executives in anticipation of a fall stock offering. The IPO still requires approval by a two-thirds majority of shares. Votes by Korn/Ferry’s 270 shareholders are due back by Friday.

The IPO would help finance Korn/Ferry’s new Internet job-search venture, called Futurestep. Though names of the investment banking team have not been revealed, it is believed that Credit Suisse First Boston is involved.

After the IPO, Michael Boxberger, Korn/Ferry’s president and chief executive, would no longer have a hands-on role with the company. The three executives promoted are Windle B. Priem, previously president of the firm’s North American operations, now a vice chairman and chief operating officer; Peter L. Dunn, previously a vice chairman, now head of Futurestep; and Elizabeth Murray, chief financial officer, now executive vice president.

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Debora Vrana covers investment banking for The Times. She can be reached at [email protected].

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Tracking the Deals

Last week’s IPO conditions

California: Poor

National: Poor

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California: 1.6

U.S.: 2.1

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Rating system

Less than 10: Poor

10-15: Normal

16-20: Strong

21-25: Outstanding

26 or more: Exceptional

IPO Indexes

The indexes above from IPO Monitor track the market for initial public offerings by measuring the performance of 30 IPOs nationwide and 10 IPOs by California-based companies. A score of 30.9, for example, indicates that shares have risen by a mean of 30.9% from the IPO price. Inktomi’s big run-up had skewed the California scale in recent weeks.

Who’s Raising Money and How

Upcoming Deals

Company: Gary Player Golf

Ticker Symbol: PLYR

City: Santa Maria

Industry: Golf

Size, in millions: 13.6

Offering: IPO

Estimated Share Price: 8

Underwriter: Whale Securities

Est. week: 7/27

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Company: Pacer International

Ticker Symbol: PACR

City: Lafayette

Industry: Transport.

Size, in millions: 38.0

Offering: IPO

Estimated Share Price: 11-13

Underwriter: BT Alex. Brown

Est. week: 7/27

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Company: Catapult Commun.

Ticker Symbol: CATT

City: Mountain View

Industry: Tech

Size, in millions: 33.5

Offering: IPO

Estimated Share Price: 9-11

Underwriter: Hambrecht & Quist

Est. week: 8/3

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Company: CitySearch.com

Ticker Symbol: CTYS

City: Pasadena

Industry: Tech

Size, in millions: 48.0

Offering: IPO

Estimated Share Price: 11-13

Underwriter: NationsBanc Mont.

Est. week: 8/3

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Company: Presidio Golf Trust

Ticker Symbol: GOF

City: San Francisco

Industry: Real estate

Size, in millions: 130.0

Offering: REIT

Estimated Share Price: 19-21

Underwriter: Salomon

Est. week: 8/3

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Company: Troy Group

Ticker Symbol: TROY

City: Santa Ana

Industry: Printing

Size, in millions: 17.0

Offering: IPO

Estimated Share Price: 7-9

Underwriter: Cruttenden Roth

Est. week: 8/3

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Company: GeoCities

Ticker Symbol: GCTY

City: Santa Monica

Industry: Tech

Size, in millions: 74.2

Offering: IPO

Estimated Share Price: TBA

Underwriter: Goldman Sachs

Est. week: 8/10

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Recent IPOs

Company: Inktomi

Ticker Symbol: INKT

City: San Mateo

Industry: Tech

Size, in millions: $36.0

Date: 6/10

Share price on 7/31: $56.88

Pct. change: +215.9

Underwriter: Goldman Sachs

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Company: NetGravity

Ticker Symbol: NETG

City: San Mateo

Industry: Tech

Size, in millions: 27.0

Date: 6/12

Share price on 7/31: 15.75

Pct. change: +75.0

Underwriter: BancAmerica R.S.

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Company: Restoration Hardware

Ticker Symbol: RSTO

City: Eureka

Industry: Retail

Size, in millions: 52.8

Date: 6/19

Share price on 7/31: 31.63

Pct. change: +66.5

Underwriter: Goldman Sachs

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Company: Natrol

Ticker Symbol: NTOL

City: Chatsworth

Industry: Vitamins

Size, in millions: 59.1

Date: 7/22

Share price on 7/31: 16.50

Pct. change: +10.0

Underwriter: Adams Harkness

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Company: MIPS Technologies

Ticker Symbol: MIPS

City: Mountain View

Industry: Tech

Size, in millions: 17.5

Date: 6/30

Share price on 7/31: 15.25

Pct. change: +8.9

Underwriter: Deutsche Bank

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Company: IDG Books Worldwide

Ticker Symbol: IDBG

City: Foster City

Industry: Publishing

Size, in millions: 50.0

Date: 7/27

Share price on 7/31: 16.00

Pct. change: +3.2

Underwriter: Morgan Stanley

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Company: Maxtor

Ticker Symbol: MXTR

City: Milpitas

Industry: Tech

Size, in millions: 451.0

Date: 7/30

Share price on 7/31: 7.00

Pct. change: 0.0

Underwriter: Salomon

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Company: Team Communications

Ticker Symbol: TMTV

City: Los Angeles

Industry: Media

Size, in millions: 10.5

Date: 7/29

Share price on 7/31: 5.38

Pct. change: -- 2.3

Underwriter: National Securities

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Company: Echelon

Ticker Symbol: ELON

City: Palo Alto

Industry: Tech

Size, in millions: 45.0

Date: 7/27

Share price on 7/31: 6.63

Pct. change: -- 5.4

Underwriter: NationsBanc Mont.

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Company: Hines Horticulture

Ticker Symbol: HORT

City: Irvine

Industry: Nursery

Size, in millions: 56.1

Date: 6/23

Share price on 7/31: 10.00

Pct. change: -- 9.1

Underwriter: Lehman Bros.

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Company: Aurora Foods

Ticker Symbol: AOR

City: San Francisco

Industry: Food

Size, in millions: 259.0

Date: 6/25

Share price on 7/31: 17.50

Pct. change: -- 16.7

Underwriter: Goldman Sachs

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Company: Golden State Vintners

Ticker Symbol: VINT

City: Greenbrae

Industry: Wine

Size, in millions: 75.3

Date: 7/21

Share price on 7/31: 14.00

Pct. change: -- 17.7

Underwriter: Goldman Sachs

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Sources: IPO Monitor, Securities Data, IPO Financial Network

In the Spotlight

TVN Entertainment Corp., a Burbank firm that helps smaller to mid-size cable operators become digital, raised $200 million on July 24 in a private placement of high-yield bonds with institutional investors. The privately held company raised the money through underwriter Morgan Stanley Dean Witter. Stuart Z. Levin founded TVN in May 1991 to broadcast pay-per-view movies, concerts and sporting events to satellite dish owners in rural areas where cable TV is unavailable. After struggling for years, the company last year shifted its focus to the digital cable business and brought in a new president, Jim Ramo. “This money is the last part of the changing of the company--Ramo is one of the most respected guys in the industry,” said Bob Scherman, editor and publisher of Satellite Business News, a trade publication in Washington.

Name: TVN Entertainment Corp.

Headquarters: Burbank

Deal: Private placement of $200 million in high-yield bonds

When: July 24