IPOs - Types of Equity Issues Initial public offering...

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Unformatted text preview: Types of Equity Issues Initial public offering (IPOs) For firms with no publicly-traded stock E.g., Netscape in 1995 Seasoned equity offering (SEOs) For firms with publicly-traded stock E.g., Netscape in 1998 Underwriters Investment banks that are spets at bringing security issues to the public Underwriter selections methods Negotiated offer (typical) Competitive offer (rare, except for utilities) Underwriter roles Help determine the best type of security (stock vs. bond vs. convertible bond, etc) Determine the issue price Sell securities (through syndicate) Issue methods 1. The general cash offer The firm issues stock in exchange for cash Firm commitment The underwriter buys entire issue and is obligated to resell it in the market (risky) Best efforts The underwriter sells much as it can Issue methods: contd 2. Rights offering The firm offers stock only to existing shareholders Stockholders may sell the right (essentially an option) if they dont want to buy more shares Direct Standby (an underwriter buys unsold shares) Average Flotation costs Direct offer = 2.5% Standby rights offer = 6.1% General cash offer = 6.1% The new issue puzzle Even though rights are cheaper, the vast majority of new issues are cash offers Why? 1. Underwriters certify the issue 2. Underwriters get higher prices 3. Proceeds available sooner (is it worth that much?) Rights issue are popular in other countries Issue methods: contd 3. Venture capital financing Small young companies often seek equity investments from VC firms that are spets at providing early-stage capital Most VCs specialize in certain industry VCs generally provide investments in sevral stages: seed money through to IPO 4. Auction (Google) Other methods Shelf offerings (rule 415) Allows firm to issue quickly when needed Regulation A offerings For issues of $5 million or less Private placements to Qualified buyers Limited marketability (rule 1441A) The process of a public offering Steps in IPO Time Pre-underwriting conferences Several months Registration statements 20-day waiting period Pricing the issue Usually on the 20 th day Public offering and sale After the 20 th day Market stabilization 30 days after the offering Great source for IPO Prof Jay Ritter (U of Florida) maintains a great web-site on IPOs http://bear.cba.ufl.edu/ritter/ipolink.htm http://bear.cba.ufl.edu/ritter/ipodata.htm The two sites provide rich set of data and links to the IPO world To IPO or not to IPO?...
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IPOs - Types of Equity Issues Initial public offering...

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