In late July 2018, a buy-side analyst at Dimensional Wealth Group (DWG), a privately owned investment management firm, needed to decide whether DWG should increase, decrease, or not change its position in Harley-Davidson Inc. (Harley-Davidson) stock. DWG had been bullish on its Harley-Davidson stock, leading DWG to increase its position in Harley-Davidson substantially over time. However, Harley-Davidson was currently facing several challenges, which suggested that the timing was appropriate for DWG to reconsider its bullish position. How should the analyst determine a suitable recommendation regarding the Harley-Davidson stock?
In late July 2018, a buy-side analyst at Dimensional Wealth Group (DWG), a privately owned investment management firm, needed to decide whether DWG should increase, decrease, or not change its position in Harley-Davidson Inc. (Harley-Davidson) stock. DWG had been bullish on its Harley-Davidson stock, leading DWG to increase its position in Harley-Davidson substantially over time. However, Harley-Davidson was currently facing several challenges, which suggested that the timing was appropriate for DWG to reconsider its bullish position. How should the analyst determine a suitable recommendation regarding the Harley-Davidson stock?
In early April 2018, Spotify Technology SA (Spotify) had planned a rare direct listing on the New York Stock Exchange. Unlike typical initial public offerings (IPOs), which used investment banks as underwriters to help set an IPO price, Spotify’s direct listing would allow market participants to determine the initial price. In a typical IPO, investment banks shopped the potential offer to various clients and, in the process of book building, determined a range for the offer when it started trading. They also often provided support for the issue on the day it started to trade, limiting the downside for shareholders if demand was low. In Spotify’s case, the investment banks were only being paid a nominal fee, and Spotify was not raising capital in the offering. The stock simply started trading on the prescribed day. A portfolio manager with a hedge fund that focused on growing technology companies was considering investing in the firm, but faced a challenge: how could she estimate Spotify’s value when it started to trade?
In early April 2018, Spotify Technology SA (Spotify) had planned a rare direct listing on the New York Stock Exchange. Unlike typical initial public offerings (IPOs), which used investment banks as underwriters to help set an IPO price, Spotify's direct listing would allow market participants to determine the initial price. In a typical IPO, investment banks shopped the potential offer to various clients and, in the process of book building, determined a range for the offer when it started trading. They also often provided support for the issue on the day it started to trade, limiting the downside for shareholders if demand was low. In Spotify's case, the investment banks were only being paid a nominal fee, and Spotify was not raising capital in the offering. The stock simply started trading on the prescribed day. A portfolio manager with a hedge fund that focused on growing technology companies was considering investing in the firm, but faced a challenge: how could she estimate Spotify's value when it started to trade?
In January 2012, Alberta-based energy infrastructure business, AltaGas Ltd. (AltaGas),was considering the purchase of U.S.-based green energy power producer Decker Energy International, Inc. The move into renewable energy and into the United States would be a departure for AltaGas, which was primarily focused on traditional energy and infrastructure businesses in Canada. The financial lead on the acquisition project was looking at the assumptions provided. His task was to value the U.S. power producer’s assets and provide feedback on issues that could affect the deal.
In January 2012, Alberta-based energy infrastructure business, AltaGas Ltd. (AltaGas),was considering the purchase of U.S.-based green energy power producer Decker Energy International, Inc. The move into renewable energy and into the United States would be a departure for AltaGas, which was primarily focused on traditional energy and infrastructure businesses in Canada. The financial lead on the acquisition project was looking at the assumptions provided. His task was to value the U.S. power producer's assets and provide feedback on issues that could affect the deal.
It is year-end 2013 and management at Gabriel Resources, a Canadian junior mining corporation, is attempting to handle investor relations and political tensions surrounding its Rosia Montana mine project in Romania. Recently, the Romanian Parliament voted overwhelmingly against granting the final permit for the gold and silver mine until a more thorough environmental and legal framework is established. Although the company promises that its project will bring significant financial benefits to the state and needed infrastructure improvements and employment in the region, both national and international civilian and non-governmental organizations have protested vociferously against a development that they see harming not only the fragile geographic ecosystem but also historical artifacts that have been a major tourist draw. The draft bill was set to allow the company to begin work on developing the potentially lucrative mine, which has been 15 years in the making and has not yet generated any revenues. Investors are worried and the company's share price is sinking. How can the company calm shareholder panic and negative stock price movement? What can it do to persuade the Romanian government and people to support the mine?
An investment analyst needs to recommend whether her firm should become an institutional investor in HudBay Minerals Inc., which is nearing completion of an acquisition to purchase another mining company, Norsemont Mining Inc.
This note provides an overview of Initial Public Offerings (IPOs) and addresses the methods used to value companies undergoing an IPO. It begins with a brief introduction to IPOs and the rationale behind going public, followed by an analysis of IPOs from the investor’s perspective. Next, the IPO process is outlined and explained, including the underwriter choice, selling procedure, pricing and activities in the aftermarket. Lastly, the note examines the valuation methodology used in the pricing stage of IPOs. This includes the discounted cash flow method, the use of market multiples of comparable firms, as well as other situational considerations when determining the initial price per share range and final offering price.
It is year-end 2013 and management at Gabriel Resources, a Canadian junior mining corporation, is attempting to handle investor relations and political tensions surrounding its Rosia Montana mine project in Romania. Recently, the Romanian Parliament voted overwhelmingly against granting the final permit for the gold and silver mine until a more thorough environmental and legal framework is established. Although the company promises that its project will bring significant financial benefits to the state and needed infrastructure improvements and employment in the region, both national and international civilian and non-governmental organizations have protested vociferously against a development that they see harming not only the fragile geographic ecosystem but also historical artifacts that have been a major tourist draw. The draft bill was set to allow the company to begin work on developing the potentially lucrative mine, which has been 15 years in the making and has not yet generated any revenues. Investors are worried and the company’s share price is sinking. How can the company calm shareholder panic and negative stock price movement? What can it do to persuade the Romanian government and people to support the mine? Spreadsheet for students is available, see 7B14N025.
An investment analyst needs to recommend whether her firm should become an institutional investor in HudBay Minerals Inc., which is nearing completion of an acquisition to purchase another mining company, Norsemont Mining Inc.