公司理財教學資料chap015

1、Chapter 15 Raising Capital,2020/12/17,Chapter Outline,The Financing Life Cycle of a Firm: Early-Stage Financing and Venture Capital Selling Securities to the Public: The Basic Procedure Alternative Issue Methods Underwriters IPOs and Underpricing New Equity Sales and the Value of the Firm The Cost o

2、f Issuing Securities Rights Dilution Issuing Long-Term Debt Shelf Registration,15-2,2020/12/17,Venture Capital,Private financing for relatively new businesses in exchange for equity Usually entails some hands-on guidance The company should have an “exit” strategy Sell the company VC benefits from pr

3、oceeds from sale Take the company public VC benefits from IPO Many VC firms are formed from a group of investors that pool capital and then have partners in the firm decide which companies will receive financing Some large corporations have a VC division,15-3,2020/12/17,Choosing a Venture Capitalist

4、,Look for financial strength Choose a VC that has a management style that is compatible with your own Obtain and check references What contacts does the VC have? What is the exit strategy?,15-4,2020/12/17,Selling Securities to the Public,Management must obtain permission from the Board of Directors

5、Firm must file a registration statement with the SEC The SEC examines the registration during a 20-day waiting period A preliminary prospectus, called a red herring, is distributed during the waiting period If there are problems, the company is allowed to amend the registration and the waiting perio

6、d starts over Securities may not be sold during the waiting period The price is determined on the effective date of the registration,15-5,2020/12/17,Table 15.1 - I,15-6,2020/12/17,Table 15.1 - II,15-7,2020/12/17,Underwriters,Services provided by underwriters Formulate method used to issue securities

7、 Price the securities Sell the securities Price stabilization by lead underwriter Syndicate group of investment bankers that market the securities and share the risk associated with selling the issue Spread difference between what the syndicate pays the company and what the security sells for initia

8、lly in the market,15-8,2020/12/17,Firm Commitment Underwriting,Issuer sells entire issue to underwriting syndicate The syndicate then resells the issue to the public The underwriter makes money on the spread between the price paid to the issuer and the price received from investors when the stock is

9、 sold The syndicate bears the risk of not being able to sell the entire issue for more than the cost Most common type of underwriting in the United States,15-9,2020/12/17,Best Efforts Underwriting,Underwriter must make their “best effort” to sell the securities at an agreed-upon offering price The c

10、ompany bears the risk of the issue not being sold The offer may be pulled if there is not enough interest at the offer price. In this case, the company does not get the capital, and they have still incurred substantial flotation costs Not as common as it previously was,15-10,2020/12/17,Dutch Auction

11、 Underwriting,Underwriter accepts a series of bids that include number of shares and price per share The price that everyone pays is the highest price that will result in all shares being sold There is an incentive to bid high to make sure you get in on the auction but knowing that you will probably

12、 pay a lower price than you bid The Treasury has used Dutch auctions for years Google was the first large Dutch auction IPO,15-11,2020/12/17,Green Shoes and Lockups,Green Shoe provision Allows the syndicate to purchase an additional 15% of the issue from the issuer Allows the issue to be oversubscri

13、bed Provides some protection for the underwriters as they perform their price stabilization function Lockup agreements Restriction on insiders that prevents them from selling their shares of an IPO for a specified time period The lockup period is commonly 180 days The stock price tends to drop when

14、the lockup period expires due to market anticipation of additional shares hitting the street,15-12,2020/12/17,IPO Underpricing,May be difficult to price an IPO because there isnt a current market price available Private companies tend to have more asymmetric information than companies that are alrea

15、dy publicly traded Underwriters want to ensure that, on average, their clients earn a good return on IPOs Underpricing causes the issuer to “l(fā)eave money on the table”,15-13,2020/12/17,Figure 15.2,Insert figure 15.2 here,15-14,2020/12/17,Figure 15.3,Insert figure 15.3 here,15-15,2020/12/17,New Equity

16、 Issues and Price,Stock prices tend to decline when new equity is issued Possible explanations for this phenomenon Signaling and managerial information Signaling and debt usage Issue costs Since the drop in price can be significant and much of the drop may be attributable to negative signals, it is

17、important for management to understand the signals that are being sent and try to reduce the effect when possible,15-16,2020/12/17,Issuance Costs,Spread Other direct expenses legal fees, filing fees, etc. Indirect expenses opportunity costs, i.e., management time spent working on issue Abnormal retu

18、rns price drop on existing stock Underpricing below market issue price on IPOs Green Shoe option cost of additional shares that the syndicate can purchase after the issue has gone to market,15-17,2020/12/17,Rights Offerings: Basic Concepts,Issue of common stock offered to existing shareholders Allow

19、s current shareholders to avoid the dilution that can occur with a new stock issue “Rights” are given to the shareholders Specify number of shares that can be purchased Specify purchase price Specify time frame Rights may be traded OTC or on an exchange,15-18,2020/12/17,The Value of a Right,The pric

20、e specified in a rights offering is generally less than the current market price The share price will adjust based on the number of new shares issued The value of the right is the difference between the old share price and the “new” share price,15-19,2020/12/17,Rights Offering Example,Suppose a comp

21、any wants to raise $10 million. The subscription price is $20, and the current stock price is $25. The firm currently has 5,000,000 shares outstanding. How many shares must be issued? How many rights will it take to purchase one share? What is the value of a right?,15-20,2020/12/17,Dilution,Dilution

22、 is a loss in value for existing shareholders Percentage ownership shares sold to the general public without a rights offering Market value firm accepts negative NPV projects Book value and EPS occurs when market-to-book value is less than one,15-21,2020/12/17,Types of Long-Term Debt,Bonds public is

23、sue of long-term debt Private issues Term loans Direct business loans from commercial banks, insurance companies, etc. Maturities 1 5 years Repayable during life of the loan Private placements Similar to term loans but with longer maturity Easier to renegotiate than public issues Lower costs than pu

24、blic issues,15-22,2020/12/17,Shelf Registration,Permits a corporation to register a large issue with the SEC and sell it in small portions over a two-year period Reduces the flotation costs of registration Allows the company more flexibility to raise money quickly Requirements Company must be rated

25、investment grade Cannot have defaulted on debt within last three years Market value of stock must be greater than $150 million No violations of the Securities Act of 1934 in the last three years,15-23,2020/12/17,Quick Quiz,What is venture capital, and what types of firms receive it? What are some of the important services provided by underwriters? What type of underwriting is the most common in the United States, and how does it work? What is IPO underpricing, and why might it persist? What are some of the costs associated wi