Shakey’s Initial Public Offering: The Dilemma of Investing

In early December 2016, a student member of the Philippine Fund of the finance lab at the Asian Institute of Management was wondering whether to invest in the initial public offering (IPO) of Shakey’s Pizza Asia Ventures Inc. (Shakey’s). Shakey’s was the market leader in the full-service chain restaurants industry in the Philippines and would be the fourth company to be listed in the Philippine Stock Exchange. The IPO period was from December 2 to December 8, 2016, and the company was offering a total of 306 million shares. The student member must decide whether to buy Shakey’s stock based on her estimate of the intrinsic value of Shakey’s relative to the IPO price, Shakey’s strategy and prior performance, and the attractiveness of the food service and restaurant industry.

This case is designed for graduate-level introductory financial management courses to teach valuation. The case may also be used as an introduction to the IPO process and leveraged buyouts (LBOs) in an investment banking elective. After working through this case and assignment questions, students will be able to do the following:<ul><li>Use top-down analysis to determine the attractiveness of a stock, starting with an assessment of industry attractiveness, followed by an analysis of company strategy, prospects, and valuation.</li><li>Appreciate why and how company owners pursue an LBO followed by an IPO.</li><li>Explain the various features of the IPO, such as the use of primary and secondary shares and the overallotment option.</li><li>Apply the discounted cash flow and comparable firm multiples methods to arrive at intrinsic price, and then compare intrinsic price to IPO price to help decide whether to buy the stock.</li><li>Evaluate the use of other valuation methods, such as adjusted present value, in light of the LBO.</li></ul>

• Valuation, Discounted cash flow, Comparable firm multiples, Initial public offering, Leveraged buy-out