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Unformatted text preview: IPOs IPO = Initial Public Offering SEO = Seasoned Equity Offering Two types of Underwriting Contracts 1. Best Efforts Underwriter can return any unsold shares to the issuer Smaller issuances 2. Firm Commitment Underwriter buys the entire issue as a set price Most well- known issuances Steps in the IPO process 1. File a Registration Statement with the SEC in accordance with the Securities Act of 1933. aka The Disclosure Statement discloses everything about the company. Part of it is used as the Initial Prospectus aka The Red Herring Underwriters are responsible for making certain everything is truthfully revealed in the Registration Statement called Due Diligence 2. Cooling off period usually about 20 days during which SEC reviews registration statement 3. Road show time (usually during cooling off period) when underwriters and company officers tout the stock to investors at meetings held in different cities Offer range The underwriters usually give an expected price range of $3 -$4 rather than a specific offer price. This range can be revised as new information comes in. Indications of Interest obtained during road shows. These are not legal obligations to purchase shares, but are indications based on various offer prices. 4. Typically, the SEC requests changes or clarifications in the registration statement. This may go several rounds. 5. Once accepted by the SEC, the red statement on the side of the front cover comes off and we have a prospectus 6. Agreement Among the Underwriters (The Underwriting Syndicate) becomes an amendment to the registration statement Members of the syndicate Lead Manager (Book Manager) Underwriters Selling group no capital commitment 1 7. The underwriting spread is set the difference between the offer price and the proceeds the underwriters pay the issuing company note that this is typically about 7% 8. The offer price is set often not finalized until after markets close the day before issuance. May be in the middle of the range, below the range, or above the range 9. Calls are placed to those who indicated interest and shares are sold. When over- subscribed, investors wont get as many shares as they requested....
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- Spring '08