Jet Blue Ipo Advanced Corporate Finance

We also know that Louis was contemplating a possible IPO exit strategy before the end of the holding period term. To estimate a multiple for this IPO exit, we need to look at the Price/Earnings ratio for Dollarama. Using the same methodology as above, we compared Dollarama to the same group of companies and computed the average P/E ratio for the set, see Exhibit 6a. We will consider the values for the year 2005 and will take a multiple of 24.6 for an eventual IPO exit.

The share price of $270,000 was significantly higher because the “fair value” as perceived by the dissenters, which accounted for the chance of an IPO. Taking into account the recently traded Kohler Co. share prices, the book value of a share, and the possibility of an IPO greatly inflated what the perceived value of each share should be. While Kohler believed their voting control and ownership structure would remain the same, the shareholders believed otherwise. Because shareholders assumed Kohler would go public, they argued for a higher valuation so as to receive the highest price, and thus profit, in the buyout.  So based on the highest MVE, we picked Masco as the comparable firm of choice. Using Masco’s MVE, $9838.8, and LTM EBIAT, $437.3, we solved for Masco’s P/E ratio, which was equal to 22.5. By multiplying the P/E ratio by Kohler’s LTM EBIAT (22.5 * $93.76), we projected a market value of $2,109,610,000.  To solve for estimated share price, we divided the projected market value by 7,587.89, the number of shares outstanding to obtain an estimated share price of $278,023.47. This estimate is near the $270,000 per share offer price.

Ross, S. A., Westerfield, R. W., & Jordan, B. D. (Eds.). (2011). Essentials of corporate finance (7th ed., Rev.). New York, NY: McGraw-Hill Irwin.

Certification of Authorship: I certify that I am the author of this paper and that any assistance I received in its preparation is fully acknowledged and disclosed in the paper. I have also cited any sources from which I used data, ideas, or words, either quoted directly or paraphrased. I also certify that this paper was prepared by me specifically for the purpose of this assignment.

We use Capital Asset Pricing Model (CAPM) approach to calculate the cost of equity. The formula of CAPM is re = rf + β × (E[RMkt] – rf).

CERTIFICATE OF AUTHORSHIP: I certify that I am the author. I have cited all sources from which I used data, ideas, or words, either quoted directly or paraphrased. I also certify that this paper was prepared by me specifically for this course.

CERTIFICATE OF ORIGINALITY: I certify that the attached paper is my original work and has not previously been submitted by me or anyone else for any class. I further declare I have cited all sources from which I used language, ideas, and information, whether quoted verbatim or paraphrased, and that any assistance of any kind, which I received while producing this paper, has been acknowledged in the References section. I have obtained written permission from the copyright holder for any trademarked material, logos, or images from the Internet or other sources. I further agree that my name typed on the line

Certification of Authorship: I certify that I am the author of this paper and that any assistance I received in its preparation is fully acknowledged and disclosed in the paper. I have also cited any sources from which I used data, ideas, words, either quoted directly or paraphrased. I also certify that this paper was prepared by me especially for this course.

To find the cost of equity we used the formula rs = rRF + beta*MRP in which rRF2002 = 5.86% and the Market Risk Premium (MRP) = 5% as calculated by the Southwest Airlines finance department. We then calculated the beta for Southwest Airlines based on a regression analysis of five-year monthly returns on Southwest stock from January 1997 to January 2002, compared with the S&P 500 returns over the same period. This regression analysis indicated that Beta = .2219. Therefore,

CERTIFICATION OF AUTHORSHIP: I certify that I am the author of this paper and that any assistance I received in its preparation is fully acknowledged and disclosed in the paper. I have also cited any sources from which I used data, ideas or words, either quoted directly or paraphrased. I also certify that this paper was prepared by me specifically for this course.

The management of JetBlue and its underwriters can also price the IPO using valuation multiples. JetBlue can employ the most current comparable data of the most appropriate competitors in terms of value in the airline industry. Valuation multiples that can be employed include, but are not limited to P/E multiples, EBIT multiples, EBITDA multiples. In this scenario, I choose to use Southwest airlines and Ryanair as the major benchmarks, because they are both considered as major low –fare airlines, and are key competitors in the United States and Europe. Nevertheless, I believe the P/E ratio is the stronger valuation tool to determine the true value of a firm. Using this method we come up with a share price of $19.32 for Southwest

First of all, we can estimated what price is competitors are able to pay to acquire AirThread Connections by creating the base-case valuation of AirThread Connections. On the hands, by valuing the upside valuation of AirThread Connections, the estimation of synergies and the suitability of ATC strategic with ACC operations. The steps in valuation of base-case Valuation of AirThread Connections and Upside Valuation of AirThread Connections are identical, the only different is Upside valuation of Airthread Connections included the impact of synergies. The first steps in valuation is to estimate the free cash flows in it's present value. Next is to predict the AirThread Connections operations' terminal value on a going concern basis and treat the company as a perpetuity and then follow by determine the interest tax subsidy in present value. After that by using the equity in earnings of affiliates and Price Earning ratio to calculate the non-operating investments in equity affiliates. The final steps is to calculate the enterprise value in the final valuation and terminal value calculation after valuing the total operating assets in its present value.

JetBlue Airlines, a low-fare commercial airline, has planned to go public towards the end of 2001. During the process the firm had restructured their initial price from $22- 24 per share to $26 – 28 per share.

4. The article said that K12 was the closest comparable company to Rosetta Stone. Rosetta Stone is marketable to a larger consumer base than K12, so I think that it should be able to charge a higher IPO. The case said that book was more than 25 times oversubscribed during its road show which means Rosetta Stone could charge a much higher price. But these subscriptions are volatile and the economy is recovering, so a price too high could deter many investors. For my analysis I took the EBITDA margin for years 2006-2008 and found the average increase during that time to be 9.93%. I then took the estimated share value from 2008 and multiplied it by 1.0993 to factor in the average increase in share value. This resulted in a price of $19.22. Given this number I would increase the current range from $15-17 to $19-24. The reason for the increased range is because of the

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.