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chap014.ppt
1.
Chapter 14 Fundamentals of Corporate Finance Fifth
Edition Slides by Matthew Will McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved Venture Capital, IPOs, and Seasoned Offerings
2.
Copyright © 2007
by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 2 Topics Covered Venture Capital The Initial Public Offering The Underwriters General Cash Offers by Public Companies The Private Placement
3.
Copyright © 2007
by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 3 Venture Capital
4.
Copyright © 2007
by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 4 Venture Capital Since success of a new firm is highly dependent on the effort of the managers, restrictions are placed on management by the venture capital company and funds are usually dispersed in stages, after a certain level of success is achieved. Venture Capital Money invested to finance a new firm
5.
Copyright © 2007
by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 5 Venture Capital 1.0 Value 1.0 Value 0.5 equity original Your 0.5 assets Other 0.5 capital venture from equity New 0.5 equity new from Cash Equity and s Liabilitie Assets ($mil) Sheet Balance Value Market Stage First
6.
Copyright © 2007
by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 6 Venture Capital Second Stage Market Value Balance Sheet ($mil) Assets Liabilities and Equity Cash from new equity 1.0 New equity from 2nd stage 1.0 Other assets 2.0 Equity from 1st stage 1.0 Your original equity 1.0 Value 3.0 Value 3.0
7.
Copyright © 2007
by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 7 Initial Offering Initial Public Offering (IPO) - First offering of stock to the general public. Underwriter - Firm that buys an issue of securities from a company and resells it to the public. Spread - Difference between public offer price and price paid by underwriter. Prospectus - Formal summary that provides information on an issue of securities. Underpricing - Issuing securities at an offering price set below the true value of the security.
8.
Copyright © 2007
by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 8 Initial Public Offering
9.
Copyright © 2007
by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 9 Initial Public Offering 0 2 4 6 8 10 12 14 16 18 Total Direct Costs (% of issue) Value of Issue ($mil) IPOs SEOs Convertibles Bonds Expenses
10.
Copyright © 2007
by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 10 The Underwriters 564 , 3 $ ers Underwrit All 204 America of Bank 286 Sachs Goldman 300 UBS 335 Bank Deutsche 362 Boston CS/First 370 Lynch Lerrill 370 Brothers Lehman 386 Morgan JP 414 Stanley Morgan $534 Citigroup issues) total of ($bil 2004 in rs Underwrite U.S. Top
11.
Copyright © 2007
by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 11 General Cash Offers Seasoned Offering - Sale of securities by a firm that is already publicly traded. General Cash Offer - Sale of securities open to all investors by an already public company. Shelf Registration - A procedure that allows firms to file one registration statement for several issues of the same security. Private Placement - Sale of securities to a limited number of investors without a public offering.
12.
Copyright © 2007
by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 12 Rights Issue Rights Issue - Issue of securities offered only to current stockholders.
13.
Copyright © 2007
by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 13 Rights Issue Rights Issue - Issue of securities offered only to current stockholders. Example - YRU Corp currently has 9 million shares outstanding. The market price is $15/sh. YRU decides to raise additional funds via a 1 for 3 rights offer at $12 per share. If we assume 100% subscription, what is the value of each right?
14.
Copyright © 2007
by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 14 Rights Issue Current Market Value = 9 mil x $15 = $135 mil Total Shares = 9 mil + 3 mil = 12 mil Amount of new funds = 3 mil x $12 = $36 mil New Share Price = (136 + 36) / 12 = $14.25/sh Value of a Right = 15 - 14.25 = $0.75 Example - YRU Corp currently has 9 million shares outstanding. The market price is $15/sh. YRU decides to raise additional funds via a 1 for 3 rights offer at $12 per share. If we assume 100% subscription, what is the value of each right?
Editor's Notes
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