Stock offerings at record clip

It's been a banner year for companies selling stock to the public, thanks mostly to some huge offerings -- including $1.2 billion from the Henley Group and $850 million from First Australia Prime Income Fund. And in one of the biggest initial public offerings (IPOs) ever, Coca-Cola Enterprises plans to spin off 51 percent of its bottling subsidiary to raise an estimated $1.5 billion.

In all, more than $13 billion in new issues has been snapped up by investors so far this year. The old record, $12.95 billion, was set in 1983.

But the precipitous stock market drop early this month may slow the pace of IPOs or at least curb the speculative bidding a bit. Then again, the pending tax reform measures may keep the IPO market rolling.

Already, private companies that want to go public before 1986 ends are knocking on underwriters' doors.

``We're seeing a lot of old family businesses that have built up sizable investments in the last 20 or 30 years -- companies that were waiting until the tax law was finalized,'' says Hugh Bennett, vice-president of corporate finance at Advest, a Hartford, Conn., brokerage with a reputation for fairly priced new issues.

``To take advantage of the current capital-gains rate, they're going public now.''

At present, long-term capital gains are taxed at a maximum rate of 20 percent. Under the new law, profits will be taxed as income.

This means that owners of private companies on the verge of going public after 1986 are likely to give the federal government a maximum of 28 percent of their profits, instead of 20 percent.

For the same reason, merger and acquisition activity is expected to rise 10 to 20 percent in the fourth quarter, according to W. R. Grimm & Co., a Chicago-based firm that tracks such transactions.

Norman G. Fosback, editor of New Issues, a Fort Lauderdale, Fla., newsletter, warns investors to be alert to tax-related negatives in store for some IPOs.

``I've noticed that several companies appear to be accelerating their offerings now before investors fathom the changes in the corporate tax rate,'' Mr. Fosback says.

The loss of investment tax credits, for instance, will reduce the reported earnings of some companies in the steel, heavy equipment, machine tool, biotechnology, airline, and trucking industries. And this tax change may cut into earnings as soon as the fourth quarter of this year.

Fosback points to PAM Transportation, a fast-growing trucking company in Tontitown, Ark. He doesn't know if this new issue is coming to market any sooner than planned, but he notes that six years of progressively rising earnings may be interrupted by the loss of big investment tax credits derived from the rapid expansion of its fleet.

For IPO investors, the tax law changes could also produce a more volatile market -- good for traders but less palatable to long-term investors.

Elimination of the six-month holding period means that ``there's no longer a reason to hold the stock. If it goes up, people will flip out. That will create more volatility,'' says Mr. Bennett at Advest.

The new tax code may also make IPOs, which typically pay little or no dividend, less attractive compared with high-dividend stocks.

Dividends are taxed as income. Since high-bracket income taxes are declining, a stock that pays a dividend will be worth more. But growth stocks may be considered less valuable, since the tax on capital gains is going from 20 to 28 percent.

Bennett doesn't argue with the logic. But he figures that ``people always be willing to put 10 to 20 percent of their portfolio into growth stocks to find another Reebok -- a real big winner.''