How to Make a Cool Half-Billion

By Janice Castro

Entrepreneurs with high-tech companies are cleaning up

The stock-market surge that has been making investors steadily richer since last August is also producing a crop of instant multimillionaires: owners of companies that are selling their first shares to the public. The "new issue" boom is being fueled by rising demand from investors for high-technology stocks. According to Roger Lopata, editor of the trade journal Going Public, the cash raised this quarter alone by companies making their public debut could top the total of $1.45 billion for all of last year.

Since there is no public market for these stocks until the offering, the entrepreneurs behind the ventures have no accurate yardstick for measuring what they, or their companies, are worth. Finding out is likely to be a pleasant experience for K. Philip Hwang, 46, chairman of Tele Video Systems Inc., and Allen Paulson, 60, chairman of Gulfstream Aerospace Corp. Their companies are among the 145 now in registration with the Securities and Exchange Commission for first-time offerings. Preliminary prospectuses show that, at the prices anticipated by the underwriters, Hwang and Paulson will soon be worth about half a billion dollars each, at least paper.

Just 15 years ago, Hwang was sweeping floors at a Lake Tahoe casino to make ends meet while earning his engineering degree. A native of North Korea who fled to the south during the Korean War, Hwang served in the South Korean army before coming to the U.S. In 1976, when he started TeleVideo in his northern California garage, he had trouble finding backers. Some friends chipped in enough to keep him going after he won a small contract to supply Atari with video monitors for its electronic games.

Today TeleVideo, based in Sunnyvale, Calif, is the world's leading independent supplier of the ubiquitous video display terminals (VDTs) used for both games and computers, with 9% of the market. Moreover, TeleVideo's vox sales have already been overshadowed by those of the company's popular small business computers (some 20,000 sold in 1982). Total company sales last year were $98.5 million, up from $1.8 million in 1978. When TeleVideo goes public, perhaps this week, its investment bankers think the stock can be sold for $16 to $18. At $18, the 700,000 shares Hwang plans to sell will bring him $12.6 million, and his remaining 28.2 million shares will be worth $507.8 million.

A few weeks after TeleVideo goes public, Gulfstream Aerospace is expected to follow. Paulson, a former airline mechanic who once sold secondhand airplanes, set up a company in 1976 that two years later bought Grumnian American Aviation Corp., maker of the Gulfstream line of corporate aircraft. Its principal product, the 19-passenger Gulfstream III fanjet aircraft, costs upwards of $10.5 million and, according to the offering prospectus, boasts the longest range and fastest cruising speed of any business aircraft. In 1982 the Savannah-based company's sales rose by 33%, to $575.5 million, and profits more than tripled, to $43 million.

Last week Paulson awarded Rolls-Royce, Ltd., a $300 million contract to make jet engines for the new Gulfstream IV aircraft. He expects to sell 300 of the planes, which will be faster and quieter than Gulfstream Ills, in the next ten years. Shearson/ American Express, which will handle the public offering, be lieves the stock will bring $17 to $20. At $20, Paulson's stake of 28.9 million shares would be worth $578.7 million. Paulson plans to pocket $65.6 million by selling 3.3 million of his own shares in the offering.

Many of the latest initial offerings are huge by historical standards: 6.3 mil lion shares of TeleVideo are expected to raise $112 million, and the 7 million Gulfstream shares, $140 million. No one has compiled rankings over the years, but these debuts doubtless number among the top ten of all time if financial entities like mutual funds are excluded (see table).

The response to new is sues has pumped up prices so much that some Wall Street experts are predicting that the bubble will burst, as it did after the speculative boom of the late '60s. There are some haunting signals that the buying is indiscriminate. After Diasonics, No. 4 on the table, went public two weeks ago, the Wall Street Journal inter viewed a buyer of the stock, who admitted, "I wouldn't know a Diasonics if it hit me on the head." (Diasonics makes ultrasound imaging systems, advanced diagnostic equipment.) Says Leon Cooperman, a partner at Goldman, Sachs & Co.: "While shares on the stock market sell for nine times earnings, some of the initial public offerings are going at al most nine times revenues." Shares of TeleVideo at $18 would be 47 times 1982 earnings and those of Gulfstream at $20 have a multiple of 14.

If a drop in prices is almost inevitable for some of the hot new stocks, it is also a good bet that among the new public companies will be some memorable success stories. To Sanford Robertson of Robertson, Colman & Stephens, a San Francisco securities firm, investors' current fascination with high-technology stocks makes sense. Says he: "I think the decade of the '80s is going to be one of tremendous growth. Investors do not want to own smokestack America any more. They want to own companies in which the U.S. has an edge on the rest of the world."

-- By Janice Castro.

Reported by Bob Buderi/ San Francisco and Mary Ann French/ New York

With reporting by Bob Buderi, Mary Ann French This file is automatically generated by a robot program, so viewer discretion is required.