Case Questions

Natasha is an example of what kind of an investor?

At each funding stage prior to the IPO $($that is$,1985,2000,2003,$ and $2006)$ calcu$-$

late the pre$-$money and post$-$money valuation of the equity of the company.

What fraction of the IPO was a primary offering and what fraction was a secondary

offering?

Immediately following the IPO the shares traded at $$14\mathrm{.}50.$

a$.$ At this price, what was the value of the whole company? Expressed in percent,

by how much was the deal underpriced?

b$.$ In dollars, how much did this underpricing cost existing shareholders?

c$.$ Assuming that none of the owners purchased additional shares at the IPO, what

fraction of the equity did Hannah own and what was it worth immediately fol$-$

lowing the IPO?

d$.$ What was the company's debt$-$equity ratio$-$the ratio of the book value of debt

outstanding to the market value of equity$-$immediately following the IPO?

Address the following questions related to the SEO:

a$.$ What fraction of the SEO was a primary offering and what fraction was a second$-$

ary offering?

b$.$ Assuming that the underwriters charged a $5\%$ fee, what were the proceeds that

resulted from Hannah's sale of her stock? How much money did the company

raise that would be available to fund future investment and repay the term loan?

Immediately following the SEO, the stock price remained at $$20$ per share.

a$.$ Once the term loan was repaid, what was the value of the whole company?

b$.$ What fraction of the equity did Hannah own?

Assume the LBO was successful.

a$.$ How much bank debt was required?

b$.$ What was the debt$-$equity ratio immediately following the LBO?

A year after the LBO, just after the second payment was made, the convertible debt

traded for a price of $$950.$

a$.$ What was its yield to maturity?

b$.$ What was the yield to call?

Assume that in the five years following the LBO Hannah was able to turn the com$-$

pany around. Over the course of this period, all the bank debt was repaid and the

company went public again. The price per share was now $$\frac{60}{?}$ share. Predict what the

holders of the convertible debt would do$.$ What would their investment be worth?