经济学院大三金融

Issuing

Securities

to

the

PublicChapter

20About

the

IPOProcessFeatures

of

CommonStockWe

focus

on

shareholderrightsVoting

rightsCumulativeThe

effect

of

cumulative

voting

is

to

permit

minorityparticipation.If

there

are

N

directors

up

for

election,

then

1/(N

+

1)percent

of

the

stock

plus

one

share

will

guarantee

youa

seat.Staggering

makes

it

more

difficult

for

a

minority

toelect

a

director.StraightWith

straight

voting,

the

directors

are

elected

one

at

atime.Proxy

votingA

proxy

is

the

grant

of

authority

by

a

shareholder

tosomeone

else

to

vote

her

shares.Classes

of

stockOther

rightsShare

proportionally

in

declared

dividendsThe

right

to

share

proportionally

in

assets

remaining

afterliabilities

have

been

paid

in

a

liquidation.The

right

to

vote

on

stockholder

matters

of

greatimportance,

such

as

a

merger.Features

of

Preferred

StockDividendsStated

dividend

must

be

paid

before

dividendscan

be

paid

to

common

stockholders.Dividends

are

not

a

liability

of

the

firm,

andpreferred

dividends

can

be

deferred

indefinitely.Most

preferred

dividends

are

cumulative

–

anymissed

preferred

dividends

have

to

be

paidbefore

common

dividends

can

be

paid.Preferred

stock

generally

does

not

carryvoting

rights.20.1

ThePublicIssueThe

BasicProcedureManagement

gets

the

approval

of

the

Board.The

firm

prepares

and

files

a

registration

statement

with

the

SEC.The

SECstudiesthe

registration

statement

duringthewaiting

period.The

firm

may

distribute

copies

of

a

preliminaryprospectus(red

herring)

to

potentialinvestors.cannot

sell

the

securitiesThe

firm

prepares

and

files

an

amended

registration

statement

with

the

SEC.If

everything

is

copasetic

withthe

SEC,a

price

isset

and

a

full-fledged

selling

effort

gets

underway.The

Process

of

a

PublicOfferingSteps

in

Public

Offering

Pre-underwriting

conferencesRegistration

statementsPricing

the

issuePublic

offering

andsaleMarket

stabilizationInvestmentBanksInvestment

banksareat

theheartofnewsecurity

issues.CertificationMonitoringMarketingrisk

bearingTombstoneAdvertisements

are

used

during

and

after

thewaiting

period.Anexample20.2

Alternative

IssueMethodsThere

are

twokinds

of

public

issues:The

general

cash

offerThe

rights

offerTable20.2-ITable20.2-II20.3TheCashOfferIfthe

cash

offer

is

a

public

one,

investment

banks

are

usuallyinvolved.There

are

two

methodsfor

selectinganunderwriterCompetitiveNegotiatedIfstockissoldtoallinterestedinvestorsin

acash

offer,

the

followings

have

to

bedone.

Formulating

the

method

used

to

issue

thesecurities.Pricing

the

new

securities.Selling

the

new

securities.Firm

CommitmentUnderwritingThe

issuing

firm

sells

the

entire

issue

to

theunderwriting

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

pricereceived

from

investors

when

the

stock

is

sold.The

syndicate

bears

the

risk

of

not

being

able

to

sellthe

entire

issue

for

more

than

the

cost.This

is

the

most

common

type

of

underwriting

inthe

United

States.Best

Efforts

UnderwritingUnderwriter

must

make

their

“best

effort”

to

sell

thesecurities

at

an

agreed-upon

offering

price.The

company

bears

the

risk

of

the

issue

not

beingsold.–

If

the

issue

cannot

be

sold

at

the

offering

price,

it

isusually

withdrawn,

and

the

companies

have

still

incurredsubstantial

flotation

costs.This

type

of

underwriting

is

not

as

common

as

itused

to

be.Dutch

Auction

UnderwritingUnderwriter

accepts

a

series

of

bids

that

includenumber

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

youget

in

on

the

auction

but

knowing

that

you

willprobably

pay

a

lower

price

than

you

bid.The

Treasury

has

used

Dutch

auctions

for

years.Google

was

the

first

large

Dutch

auction

IPO.Market

stabilizationThe

principal

underwriter

is

permitted

to

buy

sharesif

the

market

price

falls

below

the

offering

price.Many

underwriting

contracts

contain

a

Green

Shoeprovisiongives

the

option

to

purchase

additional

shares

at

theoffering

price;cover

excess

demand

and

oversubscription;usually

last

for

about

30

days

and

involve

no

more

than

15

percent

of

the

newly

issued

shares;The

Green

Shoe

option

is

a

benefit

to

the

underwritingsyndicate

and

a

cost

to

the

issuer.lockupsSpecify

how

long

insiders

must

wait

after

an

IPObefore

they

can

sell

some

of

their

stock;Typically,

lockup

periods

are

set

at

180

days.Quiet

periodAll

communication

with

the

public

must

belimited

to

ordinary

announcements

and

otherpurely

factual

matters.20.7

RightsIf

a

preemptive

right

is

contained

inthefirm’s

articles

of

incorporation,

the

firm

mustoffer

any

new

issue

of

common

stock

first

to

existing

shareholders.This

allows

shareholders

to

maintain

their

percentage

ownership

if

they

so

desire.The

terms

ofthe

optionare

knownas

sharewarrants

or

rights.Mechanics

of

Rights

OfferingsThe

management

ofthe

firm

mustdecide:The

exercise

price

(the

price

existingshareholders

must

pay

for

new

shares).How

many

rights

will

be

required

to

purchaseone

new

share

of

stock.Theserights

have

value:Shareholders

can

either

exercise

their

rights

orsell

their

rights.Rights

Offering

ExamplePopular

Delusions,

Inc.

is

proposing

a

rightsoffering.

Thereare200,000

shares

outstanding

trading

at

$25

each.

There

will

be10,000newshares

issuedata

$20subscription

price.Whatisthenewmarketvalueofthe

firm?What

is

the

ex-rights

price?What

isthevalueofa

right?Whatisthenewmarketvalueofthe

firm?$20sharesshare$5,200,000

=

200,000

shares

·

$25

+10,000

shares

·There

are

200,000outstanding

shares

at$25

each.There

will

be

10,000

newshares

issued

at

a

$20subscription

price.WhatIstheEx-RightsPrice?Thereare110,000

outstanding

shares

of

a

firm

with

a

marketvalue

of$5,200,000.Thus

thevalueof

anex-rightsshare

is:

$5,200,000

=

$24.7619210,000

sharesWhat

is

the

valueofa

right?Thus,

thevalue

of

a

right

is:$0.2381

=

$25

–

$24.7619An

individual

buying

the

stock

prior

to

theex-rights

datewill

receive

the

rights

whenthey

are

distributed.Wantstoraise$5millioninnewequity;With

a

subscription

price

of

$1020.8

TheRights

PuzzleThe

study

suggests

that

a

pure

rights

issue

is

thecheapest

alternatives.Surprisingly,

almost

all

new

equity

issues

in

theUnited

States

are

sold

without

rights.

On

the

otherhand,

rights

offerings

are

very

significant

aroundthe

world.A

few

explanations:Underwriters

increase

the

stock

price.

There

is

notmuch

evidence

for

this,

but

it

sounds

good.The

underwriter

provides

a

form

of

insurance

to

theissuing

firm

in

a mitment

underwriting.The

proceeds

from

underwriting

may

be

availablesooner

than

the

proceeds

from

a

rights

offering.No

single

explanation

is

entirely

convincing20.5

TheCost

ofNew

IssuesSpread

or

underwriting

discountOther

direct

expensesIndirect

expensesUnderpricing

(IPO)Green

Shoe

OptionAbnormal

returns

(SEO)The

Announcement

of

New

Equity

and

theValue

of

the

FirmThe

market

value

of

existing

equity

drops

on

theannouncement

of

a

new

issue

of

common

stock.Reasons

includeManagerial

InformationSince

the

managers

are

the

insiders,

perhaps

they

areselling

new

stock

because

they

think

it

is

overpriced.DebtCapacityIf

the

market

infers

that

the

managers

are

issuing

newequity

to

reduce

their

debt-equity

ratio

due

to

thespecter

of

financial

distress,

the

stock

price

will

fall.FallingEarningsIPOUnderpricingMay

bedifficult

toprice

anIPObecausethere

isnot

a

current

market

price

available.Privatecompanies

tend

to

have

moreasymmetric

information

than

companies

that

arealready

pu