Questions On Initial Public Offerings

Statement of Purpose: The purpose of this analysis is to determine if Reynolds Metals (“Reynolds”) should accept Nestlé’s offer of $61 million for its holdings of Eskimo Pie. The crux of the issue is whether or not the projected income from a proposed Initial Public Offering (“IPO”) by Wheat First Securities (“Wheat First”) is reasonable and will actually result in proceeds between $61 and $68 million to Reynolds, the Reynolds family and the Reynolds foundation, as projected. To get at this question, this paper will seek to value Eskimo Pie as a stand-alone company, if the IPO option is selected.

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.

In the IPO to get a international business, the business that handles the underwriting is known as the originating residence (Mayo, 2012). These businesses have bought the securities from an organization that is attempting to improve capital and after that searches to offer the lists to the public. The entire process of selling these securities isn't always managed by one business. Together, the brokerage companies underwrite the firm's offerings and offer them to the public. The edges of numerous businesses joining together to fingers the sale of a organizations offering is more accessibility to possible buyers also in addition it reduces the quantity of securities each business must sell. The dispersing of the selling procedure reduces the chance for every business involved with the method.

Financing Issues that an Organization Faces When Going PublicAn Initial Public Offering (IPO), is extremely expensive for organizations. It is common for a small business to pay between $50,000 and $250,000 to organize and publicize an offering. According to

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

Supporters of companies going public suggest that gaining additional capital is one of the benefits medium sized companies gain by going public. The rationale for going public is to float the shares of the company through the stock market by starting an initial public offer (IPO) inviting the public to purchase its shares and raise additional capital. Once the company has met all of the requirements for filing Security Stock and Exchange (SEC) they are in compliance with SOX. Under SOX section 404, requires

* Capital raised in an IPO can be used to pay off debt and thus reduce the interest costs and enhance the company’s debt to equity ratio

The intrinsic value of Facebook stock was very difficult to find, since the company is relatively new and has been growing at an extreme rate. Based on the most recent sale of Facebook stock via a private transaction the per share price was $44 in March. However, based on the DCF analysis by professor Aswath Damodaran the intrinsic value of a single Facebook share would be $32.44. The problem is whenever using DCF analysis; the analysis is very sensitive to all assumptions uses, which were plenty in the case of Facebook. The price talk from underwriters varied immensely within the time from of February when the Red Herring was filed, all the way to May. At the very beginning, price talks were anywhere from $20 – mid $30’s. They were set to offer 337,415,352 shares. As the broader market continued in bullish trend and momentum for the Facebook IPO became greater. Price talks now shifted to $28-$35 range. Knowing that demand for the stock was said to be growing it was noted that many IPO are priced conservative to leave room for a pop on the first day of trading. On May 11 CNBC made a statement along the lines that demand was much greater than supply for the stock. Shortly after on May 14, the price talks had now moved to $34-$38 range and now offering 421,233,615 shares, the additional shares were all of insiders. This would set the companies valuation at

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

(1) According to the case, global IPO activity during the first quarter of 2012 fell to $14.3 billion, which was dramatically down from $46.6 billion during the first quarter of 2011. In addition, we can see in Exhibit 5 that IPO activity in US have dropped sharply since the second quarter of 2011. Number of deals dropped from 383 in the second quarter of 2011 to 157 in the first quarter of 2012.

* What is an Initial Public Offering and why is it such a big deal?

The company’s objective is to improve its competitive position in deep-discount brokerage. In order to achieve this objective, the company must grow its customer base, requiring an investment of $100 million to upgrade its technological capabilities as well as an increase of $155 million for its advertisement budget. In order to evaluate the company’s cost of capital, we used the Cost Asset Pricing Model. Since the company went public recently, it would not be an accurate assessment of the risk of

(Q1) Janet Richards and Gilbert Baker own a small firm named InterCat. The firm specializes in the creation and maintenance of Internet catalogues aimed at small businesses. It currently employs around 50 people, most of whom are computer programmers and analysts that follow the high technology market closely. As partners of the firm, they have decided to continue growing and to capture new business from its competitors. To do so, they have decided to start the process of making an initial public offering (IPO). The goal is to start this process as quickly as possible for several reasons, including becoming first to market to capture most of the market share, obtaining a good stock price, and to be one of the few private firms in the

The core organization structure for XYZ Construction Inc. will get to expand in preparation for IPO. In view of global expansion, every functional division within XYZ Construction Inc. will be required to have regional representatives for better efficiency, while maintain local ways of operations. All departmental executives will give its own instructions to ensure speed of delivery in meeting the required project timeline.

An initial public offering is the decision by a company to sell its stock to the public for the first time. In some cases, this process is described as a transaction with which an investment banking company generates investment capital though making the company to go public. One of the most critical aspects within an initial public offering is significant public interest because investment bankers generate huge fees depending on the amount of capital raised. Consequently, the interest of investment bankers is usually attracted by large or well-recognized companies. Initial public offerings are sometimes characterized with huge gains on the first day but they tend to flop when the financial market is cold.