Case Study : Jetblue Ipo Valuation Finance

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Group Case: JetBlue IPO Valuation
Finance 6806, Fall 2014

Abrar Khayyat
Rajesh Maraj
Veronica Paez

November 10, 2014

Problem Statement

Only two years in existence, Jet Blue decided to become a public company and issue an initial public offering. Jet Blue’s decision came in 2002, just as the airline industry experienced a substantial downturn following the terrorist attacks of September 2011. Despite these challenges, Jet Blue remained profitable and experienced aggressive growth. In order to support this enormous growth and offset portfolio losses, the public offering seemed to be best course of action.

Jet Blue decided its IPO price should be in the range of $22-$24 per share and communicated this to the investment community. The underwriting team at Morgan Stanley forecasted excess demand from investors for the 5.5 million shares of the Jet Blue IPO, and subsequently filed for an increase in the share price to a new range of $25 to $26 per share. After raising the stock price, Jet Blue and Morgan Stanley felt that there was still tremendous demand and became worried of that the share price was still too low. Management became concerned and fragmented opinions surfaced on how to proceed. The US economy remained stagnant and the airline industry was especially hit hard; failing to offer the share price at an equilibrium price could potentially hamper Jet Blue’s access to the capital markets in the future and affect the market value of the company.
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