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The investment bankers and company executives promote

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Unformatted text preview: e information presented in the preliminary prospectus—and not to any unpublished data that might give them an unfair advantage. The investment bankers and company executives promote the company’s stock offering through a road show, a series of presentations to potential 318 PART 2 Important Financial Concepts FOCUS ON PRACTICE Investors Eat Up Weight Watchers Shares After a sluggish year for initial public offerings (IPOs) of common stock, companies rushed to tap the equity markets again during the last few months of 2001. Many investors feasted on 17.4 million shares of Weight Watchers International, which went public on November 14, just before the holiday eating season began. Investor appetite raised the offering price to $24 per share, up from the original range of $21 to $23 set by lead underwriters Credit Suisse First Boston and Goldman, Sachs & Co. Net proceeds from the IPO, after underwriting costs, were $417 million. The share price fattened throughout the day, closing up 19 percent at $28.50 on the first day. A month later, the shares were trading at the $32 level. “The company’s timing for doing this offering now is good,” said John LaRosa, research director of investment banker Financial intermediary that specializes in selling new security issues and advising firms with regard to major financial transactions. underwriting The role of the investment banker in bearing the risk of reselling, at a profit, the securities purchased from an issuing corporation at an agreed-on price. underwriting syndicate A group formed by an investment banker to share the financial risk associated with underwriting new securities. selling group A large number of brokerage firms that join the originating investment banker(s); each accepts responsibility for selling a certain portion of a new security issue on a commission basis. Marketdata Enterprises Inc., a research firm that focuses on health care industries. “Their name is well known and their earnings have been strong.” Other reasons for the popularity of the Weight Watchers’ IPO included its global presence and strong retail sales. Its long history of profitability, its easily understood business plan, and its familiar product made it stand out from the crowd of Internet and other technology IPOs. Was Weight Watchers a good investment at $32 a share? Only time will tell. Some analysts thought the stock was overpriced. Although the company’s $1.5 billion in retail sales is attractive, franchisees and licensees such as Heinz retain most of the profits on food sales. The company also gained over $481 million in debt when Artal Luxembourg S.A., a private European investment com- In Practice pany, bought Weight Watchers from H. J. Heinz in 1999. The debt burden that Weight Watchers carries exceeds its assets, resulting in a negative net worth of almost $200 million. Unlike most IPOs in which the company retains the proceeds, Artal—the selling shareholders—kept the proceeds rather than reducing the Weight Watchers debt. T...
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