$3.$ More on the IPO process

The IPO process involves several entities, such as the issuing company, institutional investors, brokers, lawyers, regulators, retail investors, and an intermediary company.

Consider the following IPO deal:

On August $10,2012,$ Manchester United PLC $($MANU$),$ a professional soccer team in the English Premier League, went public with the sale of $16,666,667$ shares of Class A ordinary common shares for $$14$ per share. The sale, which raised $$233,333,338,$ was led by the Jeffries Group, Inc. and conducted with assistance from Credit Suisse Group AG and JP Morgan. A variety of other banks across the world participated in the sale by offering shares to their customers.

Beginning on August $9,2012,$ and running for two weeks, roadshows were conducted in the United States by one management team and across Europe and Asia by a second team of MANU executives.

What was the purpose of the roadshows conducted by MANU$$s management and its investment bankers?

To generate pre$-$sale excitement and interest with prospective investors.

To practice making presentations so that when MANU$$s registration information was presented to the SEC, both MANU$$s management and the investment bankers were ready.

The underwriter in the IPO process has several responsibilities.

True or False: The underwriter is likely to promote the shares by distributing analyst reports on the stock to its associate brokerage house.

False

True

Assume that a stock$-$issuing firm has a choice between a private placement selling the shares for $$25\mathrm{.}00$ per share or a best efforts offering that will sell all available shares at the prices described in the following probability distribution:

Best efforts expected probability distribution

Probability

Selling price

Lowest quoted price$35\%$$$20\mathrm{.}00$Mid$-$range price$35\%$$$24\mathrm{.}00$Highest quoted price$30\%$$$28\mathrm{.}00$

Assuming that the issue is fully subscribed, or sold, which method would generate the most capital for the issuing firm?

Best efforts sale

Private placement