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First-sage funding:
15-3
15-1 VENTURE CAPITAL
Second-stage funding:
15-4
FIGURE 15.1 U.S VENTURE CAPITAL
INVESTMENTS
15-5
15-2 THE INITIAL PUBLIC OFFERING
Initial Public Offering (IPO)
First offering of stock/securities to public
Underwriter
Firm that buys and resells an issue of
securities
Spread
Difference between public-offer price and price
paid by underwriter
15-6
15-2 THE INITIAL PUBLIC OFFERING
Prospectus
Provides information on issue of securities
Underpricing
Issuing securities at price set below true value
of security
Subscription ratio
Initial return
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FIGURE 15.2 MOTIVES FOR IPO
15-8
TABLE 15.1 TOP MANAGING UNDERWRITERS,
2011
15-9
FIGURE 15.3 AVERAGE INITIAL IPO RETURNS
Russia
Argentina
Austria
Canada
Denmark
Chile
Norway
Netherlands
France
Turkey
Spain
Portugal
Nigeria
Belgium
Israel
Hong Kong
Mexico
UK
Italy
USA
Finland
S. Africa
New Zealand
Philippines
Iran
Australia
Poland
Cyprus
Ireland
Germany
Indonesia
Sweden
Singapore
Switzerland
Sri Lanka
Brazil
Bulgaria
Thailand
Taiwan
Japan
Greece
Korea
Malaysia
India
China
0 20 40 60 80 100 120 140
15-12
TABLE 15.3 UNDERWRITING SPREADS
15-13
FIGURE 15.5 COSTS OF RAISING CAPITAL
15-14
15-4 SECURITY SALES BY PUBLIC COMPANIES
Rights Issues
Issues of new securities offered only to current
stockholders. It is a right not an obligation.
Example
Ivanhoe Mines needs C$1.2 billion of new
equity. Market price C$24.73. Ivanhoe Mines
decides to raise additional funds by offering the
right to buy 3 new shares for 20 at C$13.93 per
share. With 100% subscription, what is value of
each right?
15-15
15-4 SECURITY SALES BY PUBLIC COMPANIES
Current Market Value of old shares:
20 x C$24.73 = C$494.60
Value of new shares:
3 x C$13.93 = C$41.79
Total Shares: 20 + 3 = 23
Ex-Rights Price
(C$41.79 + C$494.60) / 23 = C$23.32
Value of the Right
C$23.32 C$13.93 = C$9.39
15-16
15-4 SECURITY SALES BY PUBLIC COMPANIES
Rights Issue
Lafarge Corp needs to raise 1.28 billion
The market price is 60/sh
Lafarge decides to raise additional funds via a 4 for
17 rights offer at 41 per share
If we assume 100% subscription, what is the value of
each right?
15-17
15-4 SECURITY SALES BY PUBLIC COMPANIES
Rights Issue
Current market value
17 x 60 = 1,020
Total shares
17 + 4 = 21
Amount of funds
1,020 + (4 x 41) = 1,184
New share price
(1,184)/21 = 56.38
Value of the right
56.38 41 = 15.38
15-18
IPO STUDIES
15-19