IssuingSecuritiestothePublic.ppt

CHAPTER 1Issuing Securities to the PublicExecutive SummarynThis chapter looks at how corporations issue securities to the investing public.nAs the basic procedure for selling debt and equity securities are essentially the same.This chapter focuses on equity.Chapter Outline19.1 Public and Private Sources of Capital19.2 The Public Issue19.3 Alternative Issue Methods19.4 The Cash Offer19.5 The Announcement of New Equity and the Value of the Firm19.6 The Cost of New Issues19.7 Rights19.8 The Rights Puzzle19.9 Shelf Registration19.10 The Private Equity Market19.11 Summary and Conclusions19.1 Public and Private Sources of CapitalnFirms raise debt and equity capital from both public and private sources.nPublic Sources of CapitalCapital raised from public sources must be in the form of registered securities.Securities are publicly traded financial instruments.They are traded on public secondary markets,after issued on primary market.Most securities must be registered with the Securities and Exchange Commission(SEC).nPrivate Sources of CapitalPrivate capital comes either in the form of bank loans or as what are know as private placements.Private placements are financial claims exempted from the registration requirements that apply to securities.To be qualified for exemption the issue muse be restricted to a small group of sophisticated investors(fewer than 35)with minimum income or wealth requirementsPrivately placed financial instruments cannot be traded on public markets.Rule 144A allows institutions with assets exceeding$100 million to trade these financial claims among themselves.nTwo differences between public and private sourcesPublic issues has to be registered with SEC,while private placed issues need not.Public issued securities can be publicly traded,while privately placed instruments cannot.nPublic markets tend to be anonymous.Investors in public markets are legally protected against inside trading.nSince investors in private markets are assumed to be sophisticated who are aware of each others identities,inside trading is not as problematic.Advantages and Disadvantages of Private SourcesnAdvantagesTerms of private bonds and stock can be customized for individual investors.No costly registration with SEC.No need to reveal confidential information.Easier to renegotiate.nDisadvantagesLimited investor baseLess liquid19.2 The Public IssuenThe Basic ProcedureManagement gets the approval of the Board of Directors.The firm prepares and files a registration statement with the SEC.This document is required for all public issues of securities exceptLoans that mature within nine monthsIssues that involve less than$5.0 millionThe SEC studies the registration statement during the waiting period.The firm may distribute copies of a preliminary prospectus.nThe Basic ProcedureThe firm prepares and files an amended registration statement with the SEC if needed.If everything is copasetic with the SEC,a price is set and a full-fledged selling effort gets underway.A final prospectus must accompany the delivery of securities.Marketing the issue:road shows and tombstone advertisements are used during and after the waiting period.The Process of A Public OfferingSteps in Public OfferingTime1.Pre-underwriting conferences2.Registration statements 3.Pricing the issue4.Public offering and sale 5.Market stabilization Several months 20-day waiting period Usually on the 20th day After the 20th day 30 days after offeringAn Example of a Tombstone Advertisement19.3 Alternative Issue MethodsnThere are two kinds of public issues:The general cash offerCash offers are sold to all interested investors.The rights offerRights offers are sold to existing shareholders.nClassifying Equity OfferingsInitial Public Offering(IPO):the first public equity issue that is made by a company.Seasoned Offering(SEO):the new equity issue where the companys securities have been previously issued.nAll IPOs are cash offers.nSEOs can be made by using either cash offers or rights offers nAlmost all debt is sold in general cash offerings.Investment BanknInvestment banks are financial intermediaries that perform a wide variety of services.nThe business of investment banksThe sale of securitiesFacilitating mergers and other corporate reorganizationsActing as brokers to both individual and institutional clientsTrading for their own accounts.ResearchnFor corporate issuers investment banks perform the following services:Formulating the method used to issue the securities.Pricing the new securities.Selling the new securities.Top Global Underwriters,1999AdvisorsProceeds($B)RankPercent#DealsFees($M)Merrill Lynch412.3112.523682433Salomon Smith Barney(Citigroup)323.229.817481653Morgan Stanley Dean Witter296.339.025922618Goldman Sachs265.248.113082453Credit Suisse First Boston239.357.314191489Lehman Brothers202.766.21104852Deutsche Banc139.474.2898971Chase Manhattan131.384.01158354JP Morgan131.194.0710765ABN Amro102.9103.11230640Bear Stearns94.9112.9666519Bank of America81.4122.56。