FIN 620-session 7 lecture

FIN 620-session 7 lecture - FIN 620 Long-Term Financial...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
FIN 620 Long-Term Financial Management Session 7  1. Lecture Notes/Comments In session 7 we examine issuing securities to the public (chapter 20) and leasing. (chapter v21). Issuing Shares to the Public The Basic Procedure for a New Issue: -Obtain approval from the Board of Directors -File registration statement with the SEC -SEC requires a 20-day waiting period Company distributes a preliminary prospectus called a red herring Cannot sell securities during waiting period -The price is set when the registration becomes effective and the securities can be sold Tombstones are large advertisements used by underwriters to let investors know that new securities are coming to market. An Example of a Tombstone: The June 2000 issue of Red Herring provides a summary of the IPO process in “The Anatomy of an IPO” (p. 392). It provides a look at how a company goes public, starting with choosing the underwriter all the way through the first day of trading. The process is a hectic one with a lot of paperwork and marketing. Alternative Issue Methods: -General cash offer – securities offered for sale to the general public on a cash basis -Rights offer – public issue in which securities are first offered to existing shareholders on a pro rata basis An Initial Public Offering (IPO) is a company’s first equity issue made available to the public. A Seasoned Equity Offering (SEO) is a new equity issue of securities by a company that has previously issued securities to the public There are three methods for issuing securities : firm commitment, best efforts, and Dutch auction. Firm commitment underwriting – the underwriting syndicate purchases the shares from the issuing company and then sells them to the public. This is the most common type of underwriting.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Best efforts underwriting – the underwriters are legally bound to make their “best effort” to sell the securities at the offer price, but do not actually purchase the securities from the issuing firm. In this case, the issuing firm bears the risk of the market being unwilling to buy at the offer price. Dutch auction underwriting – the underwriter does not set the offer price. Instead, a series of bids is solicited from potential investors, and the price that is paid by everyone is the price that will result in all shares being sold. The U.S. Treasury has sold bills, bonds, and notes using the Dutch auction process for many years. Google is the highest profile Dutch auction IPO to date. To choose an underwriter, two alternative methods exist: Competitive offer basis – taking the underwriter that bids the most for the securities. Negotiated offer basis – the more common (and expensive) method. Investment Banks Investment Banks (or Underwriters) are investment firms that act as intermediaries between the issuer and the public. Some of the services provided by underwriters include: -Help in determining the type of security to issue -Help in determining the method used to issue the securities -Pricing of the securities -Selling the securities
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern