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Star 50* is still looking for some stars

Only 48 companies qualified for this year’s rankings. But others are waiting in the wings.

By MARK DAVIS
The Kansas City Star

The Star 50* universe grows a little darker.

Only 48 companies qualified for this year’s rankings of public companies, down one from last year. And one more is about to fall off the list.

Still, there are hopes of a brighter future.

Inergy Midstream LP became a public company last December. The Kansas City-based company won’t be eligible for a Star 50* ranking until next year.

But its initial public offering of stock, or IPO, was the first to raise money in the Star 50* territory since 2006.

Other new Star 50* companies may surface under the Jumpstart Our Business Startups Act that President Barack Obama signed last month. The JOBS Act, as it is known, will make it easier for small companies to go public by lifting some of the burdens of public ownership that have steadily whittled away at the Star 50* universe.

“There are a number of Kansas City companies that this would be of interest to,” said Kirstin Salzman, the head of the securities and corporate governance practice at Husch Blackwell LLP.

A decade ago, 80 companies vied for Star 50* status, our annual ranking of publicly traded companies in Kansas and Missouri (excluding the St. Louis area).

Now the pool is shallow.

For this year’s ranking, which is our 22nd, Flint Telecom Group Inc. bowed out by deregistering its shares with the Securities and Exchange Commission last summer. The tiny seller of prepaid cellphone service is no longer required to report its financial results publicly.

Collective Brands Inc., the Topeka shoe retailer of Sperry and other brands, has agreed to a buyout that is expected to remove it from the ranks of publicly traded companies.

Five other Star 50* companies, all banks, have gotten exit visas from the ranks of publicly traded companies, thanks to the JOBS Act. It turns out that the law aimed at clearing the path for IPOs may just as easily hold down the number of companies in the Star 50* universe.

Current crop

For now, however, there’s a budding crop of future candidates.

Inergy Midstream is cued up for a 2013 debut. The company had been part of Inergy LP, tied for No. 28 in the ranking this year. But the parent spun off partial ownership of its subsidiary by selling Midstream shares to the public.

Next year, the two companies will vie for Star 50* standing separately

March nearly brought another new candidate to Star 50*.

Instead, a software glitch disrupted the IPO of BATS Global Markets Inc. on its own stock exchange.

BATS operates stock and options exchanges in the United States and Europe. Its electronic U.S. exchanges handle more than 10 percent of all daily trades in U.S. stocks.

The Lenexa-based company had planned its own stock offering as the first to debut on the BATS Exchange. Executives withdrew the company’s IPO after the software problem and haven’t said when or whether they’ll try again.

Others wait in the wings, perhaps.

AMC Theatres chain owner AMC Entertainment Holdings Inc. registered its IPO with the Securities and Exchange Commission in August 2010. Unconfirmed media reports have said the company will withdraw its plan, though it remains on file at the SEC. AMC has been privately owned since late 2004.

AMC has grown, partly through an early 2006 merger with Loews Cineplex Entertainment. Revenues topped $2.5 billion in the most recent 12 months for which AMC has reported results in its quest to go public. In the 2004 Star 50 rankings (we didn’t need asterisks back then), AMC’s revenues were only $1.83 billion.

Smith Electric Vehicles Inc. filed a registration statement with the SEC in November. Its $125 million offering would raise money for the maker of battery-powered commercial vans and allow some existing owners to sell their shares to the public in the process.

TVAX Biomedical Inc., a Lenexa-based company, wants to raise $16.6 million through the IPO it registered in November. The funding would help in the development of cancer treatments that use a patient’s own cells.

Grassmere Acquisition Corp. filed an IPO a year ago. Led by former AMC executive Peter C. Brown, it seeks $50 million from public investors to buy other companies.

JOBS gains

Going public often means hitting a narrow window during which a receptive market and a prepared company meet.

The JOBS Act helps by making it easier for a company to get its offer ready. An IPO filing for a qualified company would need two years of audited financials instead of three. The company doesn’t have to have an auditor attest to the company’s internal controls.

“Sometimes you miss that window because you’re waiting to get your internal controls in order or you’re waiting for another round of financial statements to come through,” Salzman said.

The window slammed shut when the stock market tanked amid the financial crisis following the collapse of Lehman Brothers in September 2008.

For example, Tim Schwab had gathered about $1 million to launch a new public stock offering early in 2008. Gold Ribbon Bio Energy Holdings Inc. in Sedgwick, Kan., north of Wichita, would have built a $60 million biodiesel plant. The fuel plant seemed a natural for someone already in the trucking business.

“It’s done,” Schwab said, though he never formally withdrew the registration papers from the SEC. “The auditors and everybody soaked up the money. Plus, the market” turned south.

CyDex Pharmaceutials Inc., a Lenexa-based company whose products improve existing drugs, yanked its $50 million public stock offering six weeks after Lehman Brothers’ bankruptcy.

Three days later, AMC pulled a $500 million planned stock offering it originally had filed in 2007. Del Frisco’s Restaurant Group LLC, a Wichita-based business, pulled its $100 million offering that December.

(AMC may be back, as is Del Frisco, but the restaurant group is now based in Texas and would no longer be eligible for Star 50*.)

The JOBS Act may take a while to open the window for more companies to join the Star 50* universe.

The new law requires the SEC to create new rules to carry out the law, and the regulatory agency already is behind schedule with the rules it is writing for the Dodd-Frank financial reform act.

That means potential public companies need to keep looking for private capital sources — perhaps from private equity firms or angel investors, said Tom Van Dyke, senior counsel at Bryan Cave LLP in Kansas City.

Even companies that decide to tap the public capital market should keep in mind the added costs of being publicly traded, from the expense of extensive financial disclosures to the information those filings provide rival companies.

“I’d have to tell them to think about it very, very carefully,” Van Dyke said.

JOBS losses

BankLiberty’s parent company, Liberty Bancorp, decided two years ago that costs outweighed the benefits of remaining publicly registered. So it deregistered and no longer files detailed reports with the SEC.

The JOBS Act makes it easier for more banks to follow suit.

Liberty Bancorp was able to deregister because the number of its shareholders had dropped below 300. The new law allows a banking company to deregister if it has fewer than 1,200 shareholders.

Five current members of the Star 50* already have fewer than that.

Blue Valley Ban Corp., which owns the Bank of Blue Valley in Overland Park, has only 179 registered shareholders. Blue Valley officials said they plan to raise the issue of deregistering with the board of directors.

Being public has benefits. It puts a price tag on owners’ shares and provides a place where they can sell at that price if they like it.

Mark Funke, chief financial officer of Southern Missouri Bancorp. Inc. in Poplar Bluff, Mo., said the company raised $20 million in a secondary stock offering last November. Keeping that window open helps justify the burden of being public and is why the company will remain public even though it has only 252 shareholders, Funke said in an email.

Other changes under the JOBS Act could delay the arrival of potential Star 50* companies.

For example, any company must register with the SEC if it ends up with 500 or more shareholders. The new law raises the threshold to 2,000 shareholders, providing that no more than 499 of them are non-accredited investors. Accredited investors meet minimum income, net worth and other standards set by the SEC.

And the shareholder count no longer will include employees who received shares as part of their compensation.

It means a company likely would be able to continue raising money privately longer than has been possible.

Salzman said the provision could prove helpful to Star 50*.

Making it easier for smaller companies to keep raising money privately may ensure that more of them grow big enough to need public capital. And that would put them in future Star 50* rankings.

To reach Mark Davis, call 816-234-4372 or send email to mdavis@kcstar.com.

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