2. Why companies exist
✤ Allow individuals to pool capital and share risk
✤ To accomplish complicated tasks like international trade & creation of
complex products
✤ To make money (profit) for its owners
Thursday, 7 February, 13
3. Private vs. Public
✤ Private companies (“closely held”)
✤ Family-owned
✤ Private-equity owned
✤ Public companies
✤ Owned by shareholders
✤ Shares traded on stock exchange
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4. Public corporations
✤ Legal entities registered in a particular location
✤ Add value to raw materials or provide services, and sell them for a
profit (hopefully)
✤ Sell shares in the company to the public
✤ Disclose details on performance every three or six months
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5. Key industries
✤ Agriculture ✤ Transportation ✤ Admin/Waste Mgmt
✤ Mining ✤ Information ✤ Educational Services
✤ Utilities ✤ Finance & Insurance ✤ Health Care
✤ Construction ✤ Real Estate ✤ Arts & Entertainment
✤ Manufacturing ✤ Professional Services ✤ Accommodation &
Food
✤ Wholesale Trade ✤ Management of
Companies ✤ Other Services & Public
✤ Retail Trade Administration
Source: 2012 North American Industry Classification System
Thursday, 7 February, 13
6. How companies function
Initial
capital
Additional
share/bond
Produce goods or sales
services
Use profit to grow
Sell goods for more company or
than cost of production compensate owners
for risk
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7. Types of corporate stories
✤ Initial public offering (first sale of shares to public)
✤ New product/line of business
✤ Top executive changes
✤ Fundraising: secondary share sales & bond issues
✤ Mergers & acquisitions
✤ Earnings announcements
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8. Spot/market comment model
✤ Change: What happened? What changed?
✤ Cause: Why?
✤ Expectations: What was expected to happen?
✤ Context: Is this the first? Only? Biggest? Consistent with others?
✤ Comment: What are people saying about it? Get quotes.
✤ Future: What is likely to happen next?
Thursday, 7 February, 13
9. Spot news model (variant)
✤ What happened?
✤ Why did it happen?
✤ Key details of what happened
✤ Context & significance of what happened (“nut graf”)
✤ Consequences
✤ What’s next?
Thursday, 7 February, 13
10. Bloomberg’s four-paragraph lead
✤ Theme: What & Why
✤ Authority: Quote from someone that backs up the theme
✤ Details: Additional info & data that “are essential to telling the story”
✤ What’s at Stake: Why people should care
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11. Earnings announcements
✤ Every three or six months
✤ In most markets, companies must issue a profit-and-loss statement
showing (among other items):
✤ Revenue
✤ Cost of goods sold & other expenses
✤ Net profit
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12. The importance of net profit
✤ Net profit, or earnings or profit attributable to shareholders, is the main
driver of share prices
✤ particularly expectations about net profit
✤ The definition is standard, so net profit is comparable across industries
✤ Net profit, after subtracting dividends, becomes working capital
Thursday, 7 February, 13
13. Earnings: example
Nintendo Q3 profit down 46 percent, keeps outlook
TOKYO (Reuters) - Nintendo Co Ltd reported a 46 percent fall in quarterly profit, as sales of its
aging DS handheld device tumbled ahead of the launch of a new, 3D-capable model next Lede
month.
The news came the same day Sony Corp unveiled a rival portable gaming device set to hit the
market around the end of the year. Both firms need a new hit product to help them compete Context
against Apple's iPhone and the growing ranks of rival smartphones.
Nintendo, based in Japan's ancient capital of Kyoto, has also been battling harsh competition
from Sony and Microsoft Corp in the home game console market, after both companies Nut
launched motion-control accessories last year.
Underscoring the tough competition, Nintendo cut its sales forecast for the Wii console to 16 Future
million units from 17.5 million units for the year to March. It also lowered its DS sales forecast
to 22.5 million units from 23.5 million.
October-December operating profit at Nintendo, which competes with Sony and Microsoft was Details,
104.6 billion yen ($1.3 billion), compared with 192.3 billion yen a year ago and versus an
analysts' consensus of 118 billion yen.
Expecations
Source: Reuters, 27 Jan. 2011
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14. New product/line of business
✤ How does the new product/ ✤ What are initial sales goals?
business fit in with company’s
existing products? ✤ What are the competing
products?
✤ Price? Which markets?
✤ How will the new product/
✤ When available? business affect the company’s
profits?
✤ Supply chain?
✤ Development costs?
Thursday, 7 February, 13
15. New product: example
Volvo to Slash U.S. Line-Up in Bid to Reverse Sagging Sales
By Ola Kinnander - Jan 26, 2011
Volvo Cars, the Swedish carmaker owned by Zhejiang Geely Holding Group Co. of China, will
slash the number of models it offers in the U.S. to focus on its best- selling vehicles in a bid to Theme
reverse years of declining sales.
“Five or six is probably a good number,” said Doug Speck, head of Volvo’s operations in the
U.S., in a telephone interview yesterday, noting that Volvo currently offers nine models there. Authority
“We have to focus on the key segments with significant volume potential.”
The V50 station wagon will be discontinued, falling victim to U.S. car buyers’ change in taste
from wagons to crossovers, Speck said. He declined to say when the car will stop selling, saying Details
Source: Bloomberg, 26 Jan. 2011
he wants to tell his 316 dealers first. Volvo, based in Gothenburg, Sweden, is still reviewing
which other models will be cut from the U.S. line-up and has decided to mainly focus on the
new S60 sedan and the XC60 and XC90 crossovers, he said.
Volvo’s U.S. sales have declined steadily since 2004 when it sold 139,384 cars. Deliveries slid What’s
12 percent last year to 53,948 vehicles, while premium-segment rivals like Bayerische Motoren
Werke AG and Volkswagen AG’s Audi gained. Volvo currently offers about as many models in
at stake
the U.S. as the VW brand, which sold 256,830 vehicles in the country last year.
Thursday, 7 February, 13
16. Executive changes
✤ Who is being replaced? ✤ What do his/her colleagues
think?
✤ What are the reasons given for
the departure? ✤ What does his/her assistant
think?
✤ What are the real reasons?
✤ What’s the new salary/
✤ What is the background of the benefits?
new person? Age? Who will
take his/her old place? ✤ How will this impact
company’s profitability?
Thursday, 7 February, 13
17. Executive changes: example
Ranbaxy Chief Financial Officer Sethi Quits Five Months After
CEO Resigns
By Adi Narayan - Jan 27, 2011
Ranbaxy Laboratories Ltd., India’s largest drugmaker by sales, said President and Chief What
Financial Officer Omesh Sethi resigned on Jan. 25.
Ranbaxy, based in Gurgaon, near New Delhi, didn’t give a reason for the departure in a Why
statement to the Bombay Stock Exchange today.
The financial chief’s resignation is the second exit by a senior Ranbaxy executive in less than
six months, after former Chief Executive Officer Atul Sobti quit over differences with parent What’s
Daiichi Sankyo Co. Sethi, who joined the company in 1989, made a “significant contribution” to at stake
improve its financial performance and was involved in mergers and acquisitions, Ranbaxy said
on its website.
Source: Bloomberg, 27 Jan. 2011
“It just makes it a bit difficult” for Ranbaxy, said Hemant Bakhru, an analyst at CLSA Asia-
Pacific Markets in Mumbai. With the exit of two top executives, “you lose that continuity which
Authority
is essential for any corporate to run well.”
Masaya Tamae, a spokesman for Daiichi Sankyo in Tokyo, confirmed Sethi’s resignation and Details
declined to comment beyond that. Sethi couldn’t be reached on his office phone and didn’t
immediately respond to an e-mailed query today. Krishnan Ramalingam and Raghu Kochar,
spokesmen for Ranbaxy, didn’t answer calls to their mobile phones.
Thursday, 7 February, 13
18. Stages of an initial public offering
✤ Company decides to raise funds ✤ Underwriters fine-tune price
via IPO range
✤ Company hires investment ✤ Retail investors are invited to
banks as underwriters subscribe to IPO
✤ Underwriters determine initial ✤ Underwriters announce
pricing range for shares subscription rate and final price
✤ Underwriters sound out ✤ Shares begin trading on stock
strategic (keystone) and exchange
institutional investors
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19. IPOs: Key questions
✤ How much money will be ✤ Are there any keystone
raised? investors?
✤ How will it be used? ✤ Which investment banks are
handling the IPO?
✤ How many shares will be sold?
Percentage of total number of ✤ What are the key dates?
shares? Overallotment option?
✤ Pricing of IPO shares
✤ What percentage of IPO shares
will be reserved for institutional ✤ Listing date
investors?
Thursday, 7 February, 13
20. IPO press release
Bakers Footwear Announces Pricing of
Initial Public Offering Of Common Stock
ST. LOUIS -- Bakers Footwear Group today announced the initial public offering of
2,160,000 shares of its common stock, all of which are being sold by the Company
at a price to the public of $7.75 per share. The Company has also granted the
underwriters a 45-day option to purchase up to 324,000 additional shares of common
stock to cover over-allotments, if any. The Company's common stock is listed on the
Nasdaq National Market under the symbol: BKRS. Ryan Beck & Co. and BB&T
Capital Markets are joint managing the offering.
Net proceeds to the Company from the sale of its common stock will be used
primarily to open new stores, remodel existing stores, repay debt and increase
working capital.
Source: BusinessWire, 5 Feb. 2004
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21. IPOs: Sourcing
✤ Company executives (not just the spokespeople)
✤ Investment bankers bidding for the IPO
✤ Fund managers (often are pitched initial IPO pricing)
✤ Lawyers
Thursday, 7 February, 13
22. IPO: example
Demand Media moves ahead with $112.5 mln IPO
NEW YORK, Jan 12 (Reuters) - Demand Media Inc, which relies on search engine data and
thousands of freelancers to churn out low-cost articles and video, set terms on Wednesday for
Lede
a $112.5 million initial public offering.
The company employs 13,000 freelancers who contribute to websites including its own
eHow.com and Gannett Co's (GCI.N: Quote, Profile, Research, Stock Buzz) website for the Context
newspaper USA Today.
Source: Reuters, 12 Jan. 2011
In August, Demand Media filed for an IPO of up to $125 million. On Wednesday, the company
and stockholders filed to sell 7.5 million shares for $14 to $16 per share. Details
Demand Media plans to sell 4.5 million shares while stockholders will sell an additional 3
million shares.
Since its founding in 2006, Demand has stoked controversy and intrigue among news editors
because of its use of software algorithms to predict what stories readers want and the lifetime
advertising revenue value from search engines such as Google Inc (GOOG.O: Quote, Profile,
Nut
Research, Stock Buzz).
Thursday, 7 February, 13
23. Secondary Fundraising
✤ Debt ✤ Shares
✤ Loan or bond? ✤ New shares or existing?
✤ Maturity? Interest rate? ✤ Size of offering? Price?
✤ Credit rating? ✤ Who is underwriting?
✤ Cheaper than share offering? ✤ Cheaper than debt?
✤ How will it affect profits? ✤ How will it affect profits?
Thursday, 7 February, 13
