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1、ExecutiveSummary Thischapterlooksathowcorporationsissuesecuritiestotheinvestingpublic Thebasicprocedureforsellingdebtandequitysecuritiesareessentiallythesame Thischapterfocusesonequity ChapterOutline 19 1ThePublicIssue19 2AlternativeIssueMethods19 3TheCashOffer19 4TheAnnouncementofNewEquityandtheVal
2、ueoftheFirm19 5TheCostofNewIssues19 6Rights19 7TheRightsPuzzle19 8ShelfRegistration19 9ThePrivateEquityMarket19 10SummaryandConclusions 19 1ThePublicIssue TheBasicProcedureManagementgetstheapprovaloftheBoardofDirectors ThefirmpreparesandfilesaregistrationstatementwiththeSEC TheSECstudiestheregistrat
3、ionstatementduringthewaitingperiod ThefirmpreparesandfilesanamendedregistrationstatementwiththeSEC IfeverythingiscopaseticwiththeSEC apriceissetandafull fledgedsellingeffortgetsunderway TheProcessofAPublicOffering StepsinPublicOfferingTime1 Pre underwritingconferences2 Registrationstatements3 Pricin
4、gtheissue4 Publicofferingandsale5 Marketstabilization Severalmonths20 daywaitingperiodUsuallyonthe20thdayAfterthe20thday30daysafteroffering AnExampleofaTombstoneAdvertisement 19 2AlternativeIssueMethods Therearetwokindsofpublicissues ThegeneralcashofferTherightsofferAlmostalldebtissoldingeneralcasho
5、fferings 19 3TheCashOffer Therearetwomethodsforissuingsecuritiesforcash FirmCommitmentBestEffortsTherearetwomethodsforselectinganunderwriterCompetitiveNegotiated FirmCommitment Underafirmcommitmentunderwriting theinvestmentbankbuysthesecuritiesoutrightfromtheissuingfirm Obviously theyneedtomakeaprof
6、it sotheybuyat wholesale andtrytoresellat retail Tominimizetheirrisk theinvestmentbankerscombinetoformanunderwritingsyndicatetosharetheriskandhelpselltheissuetothepublic BestEfforts Underabesteffortsunderwriting theunderwriterdoesnotbuytheissuefromtheissuingfirm Instead theunderwriteractsasanagent r
7、eceivingacommissionforeachsharesold andusingits bestefforts toselltheentireissue Thisismorecommonforinitialpublicofferingsthanforseasonednewissues 19 4TheAnnouncementofNewEquityandtheValueoftheFirm Themarketvalueofexistingequitydropsontheannouncementofanewissueofcommonstock ReasonsincludeManagerialI
8、nformationSincethemanagersaretheinsiders perhapstheyaresellingnewstockbecausetheythinkitisoverpriced DebtCapacityIfthemarketinfersthatthemanagersareissuingnewequitytoreducetheirdebt equityratioduetothespecteroffinancialdistressthestockpricewillfall FallingEarnings 19 5TheCostofNewIssues Spreadorunde
9、rwritingdiscountOtherdirectexpensesIndirectexpensesAbnormalreturnsUnderpricingGreenShoeOption TheCostsofPublicOfferings EquityProceedsDirectCostsUnderpricing inmillions SEOsIPOsIPOs2 9 9913 28 16 96 16 36 10 19 998 72 11 63 9 65 20 39 996 93 9 70 12 48 40 59 995 87 8 72 13 65 60 79 995 18 8 20 11 31
10、 80 99 994 73 7 91 8 91 100 199 994 22 7 06 7 16 200 499 993 47 6 53 5 70 500andup3 15 5 72 7 53 19 6Rights Ifapreemptiverightiscontainedinthefirm sarticlesofincorporation thefirmmustofferanynewissueofcommonstockfirsttoexistingshareholders Thisallowsshareholderstomaintaintheirpercentageownershipifth
11、eysodesire MechanicsofRightsOfferings Themanagementofthefirmmustdecide Theexerciseprice thepriceexistingshareholdersmustpayfornewshares Howmanyrightswillberequiredtopurchaseonenewshareofstock Theserightshavevalue Shareholderscaneitherexercisetheirrightsorselltheirrights RightsOfferingExample Popular
12、Delusions Inc isproposingarightsoffering Thereare200 000sharesoutstandingtradingat 25each Therewillbe10 000newsharesissuedata 20subscriptionprice Whatisthenewmarketvalueofthefirm Whatistheex rightsprice Whatisthevalueofaright RightsOfferingExample Whatisthenewmarketvalueofthefirm Thereare200 000outs
13、tandingsharesat 25each Therewillbe10 000newsharesissuedata 20subscriptionprice RightsOfferingExample Whatistheex rightsprice Thereare110 000outstandingsharesofafirmwithamarketvalueof 5 200 000 Thusthevalueofanex rightsshareis Thusthevalueofarightis 0 2381 25 24 7619 19 7TheRightsPuzzle Over90 ofnewi
14、ssuesareunderwritten eventhoughrightsofferingsaremuchcheaper Afewexplanations Underwritersincreasethestockprice Thereisnotmuchevidenceforthis butitsoundsgood Theunderwriterprovidesaformofinsurancetotheissuingfirminafirm commitmentunderwriting Theproceedsfromunderwritingmaybeavailablesoonerthanthepro
15、ceedsfromarightsoffering Nooneexplanationisentirelyconvincing 19 8ShelfRegistration Permitsacorporationtoregisteranofferingthatitreasonablyexpectstosellwithinthenexttwoyears Notallcompaniesareallowedshelfregistration Qualificationsinclude Thefirmmustberatedinvestmentgrade Thecannothaverecentlydefaul
16、tedondebt Themarketcapitalizationmustbe 75m NorecentSECviolations 19 9ThePrivateEquityMarket Theprevioussectionsofthischapterassumedthatacompanyisbigenough successfulenough andoldenoughtoraisecapitalinthepublicequitymarket Forstart upfirmsandfirmsinfinancialtrouble thepublicequitymarketisoftennotavailable PrivatePlacements Avoidthecostlyproceduresassociatedwiththeregistrationrequirementsthatareapartofpublicissues TheSECrestrictsprivateplacementissuesotnomorethanacoupleofdozenknowledgeableinvesto