fin 423 ipo cases, 1992-present - university of...

FIN 423 Case 1 -- IPO Pricing Winter 2008

(c) Prof. G. William Schwert, 1998-2008 1

FIN 423IPO Cases, 1992-present

Some cases are for IPOs that have already happened, some are "real-time"

Teams are assigned to represent eitherTeams are assigned to represent either management or underwriters

Two phases:•negotiation occursnegotiation occurs•valuation report prepared


Some years, the negotiation pairings are assigned (bilateral monopoly)

Other years, teams are allowed to find any team on the other side of the case (competition)




Lessons:• systematic bias in valuation results as a function of the incentives

• initial position (bid or ask) seems to be unrelated toinitial position (bid or ask) seems to be unrelated to final price

• competition seems to have a stabilizing effect on prices

• negotiation success is not always related to the quality of the reports

FIN 423 IPO Case Negotiations(Initial & Final Offers) 1992

Sybron - Bilateral Monopoly

$20

$25

$30

ybro

n

Initial Bid Initial Ask Final Ask Final Bid

Failed negotiation

$10

$15

IPO

Pri

ce o

f Sy

$0

$5

1 2 3 4 5 6 7 8 9 10Negotiation #




Allstate - Competition

$25

$30

$35

llsta

te


$10

$15

$20

IPO

Pri

ce o

f Al

Evidence of Collusion???

$0

$5

1 2 3 4 5 6 7Negotiation #

FIN 423 IPO Case Negotiations(Initial & Final Offers) 1994NWA - Bilateral Monopoly

$20

$25

$30

NW

A


$10

$15

IPO

Pri

ce o

f

$0

$5

1 2 3 4 5Negotiation #

Failed Negotiation




Geerlings & Wade - Competition

$10

$12

$14

$16

G&

W


$4

$6

$8

$10

IPO

Pri

ce o

f G

$0

$2

1 2 3 4 5 6 7 8 9 10Negotiation #

Failed Negotiation


Netscape - Bilateral Monopoly

$50

$60

$70

tsca

pe


$20

$30

$40

IPO

Pri

ce o

f Net

$0

$10

1 2 3 4 5 6 7 8 9 10Negotiation #




Amazon - Competition

$20

$25

$30

maz

on


$10

$15

IPO

Pri

ce o

f Am

$0

$5

1 2 3 4 5 6 7 8 9 10Negotiation #


Charles River - Bilateral Monopoly

$20

$25

f CR

A


$5

$10

$15

IPO

Pri

ce o

f

$0

$5

1 2 3 4 5 6 7 8 9Negotiation #

Failed Negotiation




Goldman Sachs - Competition

$50

$55

$60

of G

S


$40

$45

IPO

Pri

ce

$30

$35

1 2 3 4 5 6 7 8 9 10Negotiation #

FIN 423 IPO Case Negotiations(Initial & Final Offers) 2000Tycom - Bilateral Monopoly

$40

$50

$60

Tyco

m


$20

$30

IPO

Pri

ce o

f T

$0

$10

1 2 3 4 5 6Negotiation #




Instinet - Competition

$12.50

$13.00

$13.50

nstin

et


$11.00

$11.50

$12.00

IPO

Pri

ce o

f In

$10.00

$10.50

1 2 3 4 5 6Negotiation #


JetBlue - Bilateral Monopoly

$50

$60

$70

$80

etB

lue


Failed Negotiations

$20

$30

$40

$50

IPO

Pri

ce o

f Je

$0

$10

1 2 3 4 5 6 7 8 9Negotiation #



FIN 423 IPO Case Negotiations(Initial & Final Offers) 2003AXIS Capital - Competition

$2 50

$3.00

$3.50

$4.00

0,00

0)


$1.00

$1.50

$2.00

$2.50

PO P

rice

of A

XIS

($00

0

$0.00

$0.50

1 2 3 4 5 6 7

IP

Negotiation #


MarketAxess - Bilateral Monopoly

$6

$7

$8

$9

0,00

0)


$2

$3

$4

$5

O P

rice

of M

KT

X ($

000

$0

$1

$2

1 2 3 4 5 6 7 8 9 10

IPO

Negotiation #



FIN 423 IPO Case Negotiations(Initial & Final Offers) 2005New Skies - Competition

$800

$1,000

$1,200

0,00

0)


$400

$600

Pric

e of

New

Skie

s($0

00

$0

$200

1 2 3 4 5 6 7

IPO

P

Negotiation #

FIN 423 IPO Case Negotiations(Initial & Final Offers) Spring 2006

Cowen - Bilateral Monopoly

$500

$600

$700

0,00

0)


$200

$300

$400

O P

rice

of C

owen

($00

0

$0

$100

1 2 3 4 5 6 7 8

IPO

Negotiation #



FIN 423 IPO Case Negotiations(Initial & Final Offers) Fall 2006

Carrols - Bilateral Monopoly

$2,500

$3,000

$3,500

0,00

0)


$1,000

$1,500

$2,000

O P

rice

of C

arro

ls ($

000

$0

$500

1 2 3 4 5 6 7

IPO

Negotiation #

FIN 423 IPO Case Negotiations(Initial & Final Offers) Winter 2008

Digital Domain - Competition

$500

$600

$700

$800

0,00

0)


$200

$300

$400

$500

of D

igita

l Dom

ain

($00

0

$0

$100

1 2 3 4 5 6 7

IPO

Pri

ce o

Negotiation #



FIN 423 Case #1, Report Points(Max = 75, Avg = 55.6, Std= 11.5)

14

16

18

ents

4

6

8

10

12

Num

ber

of S

tude

0

2

4

35 40 45 50 55 60 65 70 75

Scores Less than or Equal to (but Greater than prior group)

FIN 423 Case #1, Negotiations

Bid1 BidL AskL Ask1 UP MP

$100.0 $160.0 $160.0 $200.0 21.5 18.5

$85.0 $90.0 $90.0 $95.0 25.0 15.0

$187.5 $291.7 $291.7 $351.5 15.0 25.0

$200.0 $230.0 $230.0 $390.0 18.1 21.9

$225.0 $250.0 $250.0 $275.0 17.1 22.9

$120.0 $165.0 $165.0 $200.0 21.3 18.7

$100.0 $164.5 $164.5 $738.0 21.3 18.7

$150.0 $150.0 $150.0 $350.0 18.0



FIN 423 Case #1, Total Points(Max = 100, Avg = 75.8, Std = 12.6)

14

16

18

20

ents

6

8

10

12

14

Num

ber

of S

tude

0

2

4

50 55 60 65 70 75 80 85 90 95

Scores Less than or Equal to (but Greater than prior group)

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