1 At the end of the discussion Dan asks Robin about the Dutch auction IPO process. What are the differences in the expenses to West Coast Yachts if it uses a Dutch auction IPO versus a traditional IPO?

Should the company go public with a Dutch auction or use a traditional underwritten offering?

Larissa Warren and Dan Ervin have been discussing the future of West Coast Yachts. The company has been experiencing fast growth, and the future looks like clear sailing. However, the fast growth means that the company’s growth can no longer be funded by internal sources, so Larissa and Dan have decided the time is right to take the company public. To this end, they have entered into discussions with the bank of Crowe & Mallard. The company has a working relationship with Robin Perry, the underwriter who assisted with the company’s previous bond offering. Crowe & Mallard have helped numerous small companies in the IPO process, so Larissa and Dan feel confident with this choice.
Robin begins by telling Larissa and Dan about the process. Although Crowe & Mallard charged an underwriter fee of 4 per cent on the bond offering, the underwriter fee is 7 per cent on all initial equity offerings of the size of West Coast Yachts’ initial offering. Robin tells Larissa and Dan that the company can expect to pay about £1,200,000 in legal fees and expenses, £12,000 in registration fees, and £15,000 in other filing fees. Additionally, to be listed on the London Stock Exchange, the company must pay £100,000. There are also transfer agent fees of £6,500 and engraving expenses of £450,000. The company should also expect to pay £75,000 for other expenses associated with the IPO.
Finally, Robin tells Larissa and Dan that, to file with the London Stock Exchange, the company must provide three years’ worth of audited financial statements. She is unsure of the costs of the audit. Dan tells Robin that the company provides audited financial statements as part of its bond indenture, and the company pays £300,000 per year for the outside auditor.