Question

Case Study:

A local family business is facing a decision. Constantine’s Grocery has been a landmark company in a small city in the USA. Over the past 60 years, what began as a single fresh fruit and vegetable store became a full service grocery store chain with many stores throughout the city. Constantine is incorporated with only 6 shareholders, all family members. The decision it is facing is how to raise much needed capital to maintain its current business operations and to allow the possibility of growth in the future. The family believes it needs an additional $135 million dollars. This sum is too large for a bank line of credit and no one in the family has additional funding to invest into the company. The family is considering other alternatives.

One alternative is to publicly issue debt (corporate bonds), the other alternative is to issue common stock to the public.

• In this paper, describe the process (in detail) of how a public offering occurs. A chronological account of how most public offerings would be an appropriate format, although not required.
• In addition, discuss the impact and implications of each alternative.
• How does each alternative affect control over the company?
• As a small family business, the internal affairs and finances of the company were well guarded from the public view by the family. How does this change?
• What are the financial reporting effects of this decision?
• How will additional debt impact future earnings? How will new stockholders change the management of the company?

Superior papers will explain the following elements:

• Provide a narrative about the impact of issuing stock to the public. The narrative will include the topics of loss of control of the company and the requirements that future financial statements will be available to the public.
• Provide a narrative about the impact of issuing debt to the public. The narrative will include the topics of potential loss of the company if debt covenants are breached and the requirements that future financial statements will be available to the public.
• Provide a narrative on the initial public offering (IPO) process using at least four research sources outside the textbook material. The narrative of the IPO process steps should include the (a) role of investment banker, (b) deal negotiation, ( c) preparation and submission to the SEC of the registration statement, (d) SEC approval, ( e) setting an issue date, and (f) setting an issue price.

please provide references for the answer and also "DO NOT COPY AND PASTE" Thank you :)

Answer 1

1 . In this paper, describe the process (in detail) of how a public offering occurs. A chronological account of how most public offerings would be an appropriate format, although not required.

Answer :

• A. Pre-IPO Planning:

1. Organizational Meeting with an Auditor,Underwriters, Advisors and legal authorities.
2. Decision Making and Assessment of the Investment Universe to analyse the Investor's expectations.
3. Appointing Investment Bank or a Leading Merchant Banker.
4. Selecting an Underwriter
5. Creating the Prospectus

• B. Getting filed with SEC:
  1. Forming the Financial Statement Presentation with the SEC
  2. Take down the Company Valuation and In depth Analysis
  3. Financial Due Diligence.
• C. Review and Revision with the help of SEC:
  1. Finalize Diligence
  2. Meeting Analysts with the review and understanding the next steps
  3. Application to be sent to the Stock Exchanged to be listed.
  4. Writing back to the SEC with the comments.
• D. Prospectus Approval and Listing
  1. Admission for Listing
  2. Admission to Trading Notice
  3. Finalize offering pricing
• E. Investment Bank decides the Price Band and Listed IPO will be set to the Public through Advertising
• F. Post-IPO:

1. Check if anything needs to to be refined
2. Follow up with the Public Comments on the IPO
3. Apply Strategies which helps to stabilize and standardize for an FPO if necessary.

2.In addition, discuss the impact and implications of each alternative.

Other than raising an IPO to raise money from the Shareholders, is to raise loans in a smaller amounts from the Banks or raise debt from the Credit Institutions. Credit Risk and Market Risk can alter the Business Situation. Hedging risk by using Commodity Derivatives could also be helpful but couldn't rely on this on an entirety. In a case of a very Successful IPO, one can raise for the next FPO(Follow Upon Bidding) which can raise more shareholders and wealth.

3.How will additional debt impact future earnings? How will new stockholders change the management of the company?

Additional Debt can be managed if the Sales and Revenue for each Quarter is showing an improvement. But if the inventory becomes unmanageable, and accounts receivables gets increased, it can lower the expectations and can act as a threat to the creditors and suppliers. Leveraging options maybe entertained by the management but if they can make it to the profit there will not be a problem with Shareholder's Interests. In case of making losses or earnings not upto the par, or showing the additional debt that cannot be covered within short period could threaten the new stockholders to purchase the stock.

4. As a small family business, the internal affairs and finances of the company were well guarded from the public view by the family. How does this change?

Auditing is one such area where the internal controls and external controls will be monitored and this can bring a change to prove the authenticity of the financial statements, accounting policy changes and acceptance of the accounting methods.