First Federal Bankshares (FFSX) demonstrates in spades what can happen to a second-stage conversion in a weak market. FFSX originally IPO'd on 7/13/92 and filed to second-stage on 10/18/98. During those six years the price increased by 398%, closing at $24 on the filing date. (During the speculative frenzy of early 1998 it was bid up to a high of $39 a share).
The exchange terms of the filing stated that at minimum, 1.647 new $10 shares would be exchanged for every old share. At supermax, the exchange called for 2.569 new $10 shares for every old share. The closing date was 3/22/99 and the price had fallen to $22.63 a share. In a shaky market, the $22.63 that minority shareholders would be exchanged out of, was scary. At worst the minority shareholder's $22.63 could be worth $16.47 and at best it could be worth $25.69 at the open. To compound the problem of valuation and add one more unwanted variable to the mix, FFSX decided to concurrently buy Mid Iowa for 194% of book value. (In hindsight this wasn't wise and I don't think these transactions should ever be done at the same time again.)
What happened? The offering went at minimum and the $22.63 was worth $16.47 at the open. This price represented 71.5% P/B. At this low price under normal conditions a pop would have occurred. Unfortunately, the confluence of a poor market and poor management decisions were enough to drop the stock price by another 3.1%. The minority shareholders lost about 30% on the day. The depositors who took part in the offering lost 3.1%. Little capital was raised in the offering, so valuation are more compelling for long term holders. (One would hope, though, that management acts a little smarter in any future transaction).
Looking at a good deal and a bad deal demonstrates the riskiness of these second-stage transactions. In a shaky market, nobody knows with any certainty exactly how any of these deals will turn out. (Because of current market conditions I don't know with any certainty how the American Savings' IPO will turn out either). By studying past second-stage offerings, at least we understand the mechanics of the transactions. I think in the future, the thrift market will not be as unsettled as it is today and we will be able to make reasonable assumptions about these transactions.