1. BJ’s Wholesale Club Holdings went through IPO on 6/28/2018. Approximately 37.5 million shares were offered...

1. BJ’s Wholesale Club Holdings went through IPO on 6/28/2018. Approximately 37.5 million shares were offered at a price of $17/share. A total of $36,656,250 was paid as underwriting fees. The price rose to roughly $21 on the first day of trading. What was BJ’s loss (at best) in this IPO? (0.5)

Expert Solution

Number of shares offered in IPO = 37.5 million

IPO Price = $17 / share

Listing Price (Price on 1st day of trading) = $21 / share

Underwriting fees = $36,656,250

Loss in terms of underpricing of IPO i.e. Charging less per share in IPO than what could have been charged:

= Number of Shares * (Listing Price - IPO Price)

= 37.5 * (21 - 17)

= 37.5 * 4

= $150 million

Company has lost $150 million by charging less per share in the IPO than what it was worth as per listing price.

Total Loss in IPO = Underpricing Loss + Underwriting Fees Paid

Total Loss in IPO = $150 million + $36,656,250

Total Loss in IPO = $186.656 million

BJ's at best loss in this IPO would be to the tune of $186.656 million.

jeff jeffy answered 2 years ago

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