Professional Documents
Culture Documents
Corporate Finance
Chapter 15 Eighth Edition
How Corporations
Issue Securities
Slides by
Matthew Will
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Topics Covered
Venture Capital
The Initial Public Offering
Other New-Issue Procedures
Security Sales by Public Companies
– Rights Issue
Private Placements and Public Issues
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Venture Capital
Venture Capital
Money invested to finance a new firm
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Venture Capital
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Venture Capital
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120
106.2
100
80
$ Millions
54.4
60
40.7
40
21.2 21.2 18.4
14.8
20 7.6 11.5
3.7 4.2
0
1994
1999
1993
1995
1996
1997
1998
2000
2001
2002
2003
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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.
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Value of Issues
Underwriter ($billion) Number of issues
Citigroup 543 1872
Morgan Stanley 395 1365
Merrill Lynch 380 1914
Lehman Brothers 354 1264
J.P. Morgan 354 1417
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Initial Offering
Average Expenses on 1767 IPOs from 1990-1994
Value of Issues Direct Avg First Day Total
($mil) Costs (%) Return (%) Costs (%)
2 - 9.99 16.96 16.36 25. 16
10 - 19.99 11.63 9.65 18. 15
20 - 39.99 9.7 12.48 18. 18
40 - 59.99 8.72 13.65 17. 95
60 - 79.99 8.2 11.31 16. 35
80 - 99.99 7.91 8.91 14. 14
100 - 199.99 7.06 7.16 12. 78
200 - 499.99 6.53 5.70 11. 10
500 and up 5.72 7.53 10. 36
All Issues 11.00 12.05 18. 69
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Rights Issue
Rights Issue - Issue of securities offered only to
current stockholders.
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Rights Issue
Example - Lafarge Corp needs to raise €1.28billion of new equity. The
market price is €60/sh. Lafarge decides to raise additional funds via a 4 for
17 rights offer at €41 per share. If we assume 100% subscription, what is
the value of each right?
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Web Resources
Click to access web sites
Internet connection required
www.redherring.com
www.nvca.org
www.evca.com
www.asianfn.com
www.ventureeconomics.com
www.pwcmoneytree.com
www.v1.com
www.vnpartners.com/primer.htm
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