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1、54919.1 The Public IssueThe basic steps in a public offering are depicted in Table 19.1. The Securities Act of 1933 sets forth the federal regulation for all new interstate securities issues. The Securities Exchange Act of 1934 is the basis for regulating securities already outstanding. The SEC admi
2、nisters both acts.The Basic Procedure for a New Issue1. Managements first step in any issue of securities to the public is to obtain approval from the board of directors.2. Next the firm must prepare and file a registration statement with the SEC. This statement contains a great deal of financial in
3、formation, including a financial history, details of the existing business, proposed financing, and plans for the future. It can easily run to 50 or more pages. The document is required for all public issues of securities with two principal exceptions: a. Loans that mature within nine months. b. Iss
4、ues that involve less than $5.0 million.Issuing Securities to the PublicOn August 19, 2004, in an eagerly awaited initial public offering (IPO), the Internet search engine company Google went public. Initially the company expected to sell about 26 million shares of stock at a price of $108 to $135 p
5、er share through an unusual (for an IPO) “Dutch auction” process. Just before the company went public, it reduced the price to $85 per share and cut the number of shares offered to 19.6 million. Even with these lower numbers, the companys value when it first sold shares to investors was $23 billion.
6、 By some standards the IPO was successful, but several missteps plagued the offering, including confusion over the Dutch auction process, unregistered stock given to employees, and comments made in interviews given by the companys founders. The IPO appears to have been very successful for investors,
7、 however. On July 11, 2006, the stock was selling for $417.43 per share. In this chapter, we examine the process by which companies such as Google sell stock to the public, the costs of doing so, and the role of investment banks in the process.Businesses large and small have one thing in common: The
8、y need long-term capital. This chapter describes how they get it. We pay particular attention to what is prob-ably the most important stage in a companys financial life cyclethe initial public offering. Such offerings are the process by which companies convert from being pri- vately owned to being p
9、ublicly owned. For many people, starting a company, growing it, and taking it public are the ultimate entrepreneurial dream.CHAPTER 19P A R T F I V Eros05902_ch19.indd 549ros05902_ch19.indd 5499/25/06 11:43:07 AM9/25/06 11:43:07 AM550 Part V Long-Term FinancingThe second exception is known as the sm
10、all-issues exemption. Issues of less than $5.0 million are governed by Regulation A, for which only a brief offering statementrather than the full registration statementis needed. For Regulation A to be operative, no more than $1.5 million may be sold by insiders.3. The SEC studies the registration
11、statement during a waiting period. During this time, the firm may distribute copies of a preliminary prospectus. The preliminary prospec- tus is called a red herring because bold red letters are printed on the cover. A prospectus contains much of the information put into the registration statement,
12、and it is given to potential investors by the firm. The company cannot sell the securities during the waiting period. However, oral offers can be made.A registration statement will become effective on the 20th day after its filing unless the SEC sends a letter of comment suggesting changes. After th
13、e changes are made, the 20-day waiting period starts anew.4. The registration statement does not initially contain the price of the new issue. On the effective date of the registration statement, a price is determined and a full-fledged selling effort gets under way. A final prospectus must accompan
14、y the delivery of se-curities or confirmation of sale, whichever comes first.5. Tombstone advertisements are used during and after the waiting period. An example is reproduced in Figure 19.1.19.2 Alternative Issue MethodsWhen a company decides to issue a new security, it can sell it as a public issu
15、e or a private issue. If it is a public issue, the firm is required to register the issue with the SEC. If the issue is sold to fewer than 35 investors, it can be treated as a private issue. A registration statement is not required in this case.1Table 19.1 The Process of Raising CapitalSteps in Publ
16、ic Offering Time Activities1. Preunderwriting Several months The amount of money to be raised and the type of security conferences to be issued are discussed. The underwriting syndicate and selling group are put together. The underwriting contract is negotiated. Board approval is obtained. 2. Registration statements A 20-day waiting The registration statement contains all relevant filed and approved period financial and business in
