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    Using the following scenario:

    Helen Troy started a Teabucks teashop in Troy, Michigan a few years ago. She formed a corporation, and owned all the shares of this corporation. She played various roles as the CEO and a cashier. Fortunately for Helen her teashop became very popular and her firm grew at a very rapid pace. She expanded her business to all the big cities. She added more staff and even hired a MBA graduate from the University of Michigan. The firm has negligible debt, and all the growth has been financed with equity. The stock was owned by only a few individuals and hence a privately held corporation. Therefore no market price has been established for the stock. Now she wants to expand into tea packaging and tea bottling operations, which require large investment outlays. So Helen decided to take her company public.

    Answer the following questions:
    1. Outline the procedure for issuing an IPO.

    2. How would you go about choosing an investment banker for the issue?

    3. How many shares would you issue and at what price would you offer Teabuck's?

    4. Discuss if you would use traditional method of issuing the IPO or the Internet to issue the IPO as Google did. Discuss the pros and cons in each case.

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    Solution Preview

    Answer the following questions:

    1. Outline the procedure for issuing an IPO.

    The first step for issuing an IPO is to ensure that the organization meets the minimum criteria for issuing the IPO, such as audited financial results for the last years, etc. The organization should conduct an extensive analysis of the viability of the IPO, the money that it expects to generate via the IPO, the deployment of the funds, etc. Once the organizational management is convinced about the prospects of IPO and ensures that it meets minimum criteria, the next step is to select an investment banker for underwriting the public issue. A good investment banker is critical for your IPO. They draft your prospectus, assist with the filing, solicit investors, determine the offering price and sell the stock.

    The first step in the formal IPO process is for the company to register with the Securities and Exchange Commission (SEC). Plan on it taking at least six to eight weeks to prepare all the documentation. To start the process an "all-hands" meeting is scheduled to determine an appropriate timetable and responsibilities for each member of the team. Included are all of the members of the internal IPO team the accountant, law firm and lead investment bank. One of the most critical documents that needs to be developed by this group is the prospectus. The prospectus is a brochure that is used to describe all aspects of the company - its financial data for the past five years, the management team, the target market, competitors and growth strategy. Since the SEC imposes a quiet period of 25 days between the time you file with them until the stock starts trading, this brochure is all that you can tell prospective investors about yourself so its accuracy and informativeness is a vital part of the IPO. Prospectuses for all U.S. companies are available free from the SEC web site or from the company itself.

    Knowing that the quiet period will be occurring, the six to eight week period also includes a multi-city tour, known as the "road show". For a number of weeks the ...

    Solution Summary

    Outline the procedure for issuing an IPO.