chapter 15 issue of securities
TRANSCRIPT
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How Corporations Issue
Securities
Principles of
Corporate
Finance
Seventh Edition
Richard A. Brealey
Stewart C. Myers
Slides by
Matthew Will
Chapter 15
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Topics Covered
Venture Capital
The Initial Public Offering
Other New-Issue Procedures
Private Placeents and Public Issues
!ights Issue
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Venture Capital
Venture Capital
"one# invested to finance a new fir
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Venture Capital
Since success of a new fir is highl# dependent on
the effort of the anagers$ restrictions are placed on
anageent b# the venture capital copan# andfunds are usuall# dispersed in stages$ after a certain
level of success is achieved%
Venture Capital
"one# invested to finance a new fir
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Venture Capital
&%'Value&%'Value(%'e)uit#original*our(%'assetsOther
(%'capitalventurefroe)uit# New(%'e)uit#newfroCash
E)uit#ands+iabilitie,ssets
.il/Sheet0alanceValue"ar1etStage2irst
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Venture Capital
(3%'Value(3%'Value
4%'e)uit#original*our5%'assetsOther
4%'stage(stfroE)uit#(%'assets2i6ed
3%'stage&ndfroe)uit# New3%'e)uit#newfroCash
E)uit#ands+iabilitie,ssets
-.il/Sheet0alanceValue"ar1etStageSecond
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nitial !""erin#
nitial $ublic !""erin# %$!& - 2irst offering of stoc1to the general public%
'nderwriter - 2ir that bu#s an issue of securities
fro a copan# and resells it to the public%Spread - 7ifference between public offer price and
price paid b# underwriter%
$rospectus - 2oral suar# that provides
inforation on an issue of securities%
'nderpricin# - Issuing securities at an offering price
set below the true value of the securit#%
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The 'nderwriters
($833ers9nderwrit,ll
5:Stearns0ear
((;0an1 7eutsche
(;:0rothers+ehan
(3'SachsP
&&=0arne#SithSoloanCitigroup?
&38+#nch"errill
.;4=,"!O,0N
issues)total of ($bil
2000inrsUnderwriteU.S.Top
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The 'nderwriters
($3;'ers9nderwrit,ll
==@arburg90S
55Stanle#"organ
(''Capital0arcla#s
('8"organ>P
('80oston2irstSuisseCredit
((;Paribas0NP
((;0arne#SithSoloonCitigroup?
(3'0an1 7eutsche
(84+#nch"errill
.;8=,"!O,0N
issues)total of ($bil
2000inrsUnderwrite Intl.Top
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nitial !""erin#
Average Expenses on 1767 IPOs from 1990-1994Value of Issues
.il/
7irect
Costs A/
,vg 2irst 7a#
!eturn A/
Total
Costs A/
& - 5%55 (:%5: (:%;:
(' - (5%55 ((%:; 5%:4
&' - ;5%55 5%= (&%38
3' - 45%55 8%=& (;%:4
:' - =5%55 8%& ((%;(
8' - 55%55 =%5( 8%5(
('' - (55%55 =%': =%(:
&'' - 355%55 :%4; 4%='
4'' and up 4%=& =%4;
,ll Issues ((%'' (&%'4
&4(:
(8 (4
(8 (8
(= 54
(: ;4
(3 (3
(& =8
((('
(' ;:
(8 :5
.
.
.
.
.
.
.
.
.
.
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(eneral Cash !""ers
Seasoned !""erin# - Sale of securities b# a fir that isalread# publicl# traded%
(eneral Cash !""er - Sale of securities open to all
investors b# an alread# public copan#%Shel" Re#istration - , procedure that allows firs to
file one registration stateent for several issues of
the sae securit#%
$rivate $lace)ent - Sale of securities to a liited
nuber of investors without a public offering%
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'nderwritin# SpreadsGross underwriter spreads of selected issues, 2001
Issue amount, Underwriters
T!pe "ompan! millions of dollars spread, percent
IPO Torch Offshore 8'%' =%''
IPO ,lliance Iaging (&&%' =%''
IPO 9sp (&:%' =%''
IPO Telliu (;4%' =%''
IPO ,gere S#stes ;:''%' ;%5'
easone! National
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Ri#hts ssue
Ri#hts ssue - Issue of securities offered onl# tocurrent stoc1holders%
*+a)ple - +afarge Corp needs to raise E(%(billionofnew e)uit#% The ar1et price is E55%:4?sh%+afarge decides to raise additional funds via a (for 8 rights offer at E8' per share% If we assue(''A subscription$ what is the value of each
rightD
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Ri#hts ssue
⇒Current "ar1et Value 8 6 E55%:4 E=5=%&'
⇒Total Shares 8 F ( 5
⇒,ount of funds =5=%&' F 8' 8==%&'
⇒ New Share Price 8==%&'/ ? 5 E5=%3=⇒Value of a !ight 5=%3= - 8' (=%3=
*+a)ple - +afarge Corp needs to raise E(%(billionof new e)uit#% Thear1et price is E55%:4?sh% +afarge decides to raise additional funds via a (
for 8 rights offer at E8' per share% If we assue (''A subscription$ what is
the value of each rightD