More Private, Less Public

OTC Legacy

The Twin Cities’ over-the-counter market for trading local stocks led many companies to go public here in the 1960s and early 1970s. Initially dubbed “the dollar stock market,” it took root half a century ago when Control Data Corporation, a local pioneer in the mainframe computer industry that has since been sold off in pieces, went public at $1 a share. Soon Medtronic followed suit, selling subordinated debentures that converted into stock valued at $1.75 a share.

These two successes led to a local stock market that enticed even the smallest of the small of go public. In 1961, One-Hour Cleaners in Excelsior went public at $1 share. A decade later, it barely topped $500,000 in annual sales. Pasty House on Minneapolis’s north side, which distributed baked foods, made an offering at $2.30 a share in 1968; Huck Finn, which made pontoon boats in Spring Lake Park, at $2.25 in 1969; Item House in Minneapolis, which imported apparel from Japan, Korea and Italy, at $2.75 in 1970.

Most of the IPOs didn’t go to the market for exactly a dollar a share, but the term “dollar stock market” stuck for a while as a generic descriptor. Financing support encouraged a highly entrepreneurial culture in the Twin Cities. The risks for investors were high, but the stocks were cheap and the potential rewards were irresistible. A few locally financed companies operated at the edge of the law, and many others quickly flamed out, but some—not just Control Data and Medtronic—went on to become big successes.

Sound of Music, which had only $825,000 in sales, went public in 1969 at $3.30 a share. Anyone fortunate enough to hang onto a sheaf of those shares would have accumulated a vast fortune by now. The company evolved into Best Buy.

Osmonics went public at $5 a share in 1971. In 1994, it won a New York Stock Exchange listing. In 2003, General Electric bought the company for $275 million. Richard Perkins, founder of Perkins Capital Management in Wayzata, frequently invested in companies that arose out of the local stock market. He views the decline of this market as a loss for the community. “That was an era,” Perkins says. “That was how it was. You can’t always go back.”

Like many others, Perkins puts a lot of the blame on the 2002 Sarbanes-Oxley Act and the auditing and other compliance costs it has heaped onto smaller companies. “That’s one of the reasons these companies are merging,” he argues. “It’s just too costly, too expensive” for small entities to be public anymore.

—D.B.