Case Study 1. LAWSUIT DEFENSE STRATEGY (Ch. 3 Project Management) Janet Richards fixes her eyes on those of her partner Gilbert Baker and says firmly, All right. Lets do it.

And with those words, InterCat, a firm founded by Janet and Gilbert that specializes in the design and maintenance of Internet catalogs for small consumer businesses, will be going public. InterCat employs 30 individuals, with the majority of them computer programmers. Many of the employees have followed the high-technology market very closely and have decided that since high-technology firms are more understood and valued in the United States than in other countries, InterCat should issue its stock only

in the United States. Five million shares of InterCat stock will comprise this new issue.

The task the company has ahead of itself is certainly daunting. Janet and Gilbert know that many steps have to be completed in the process of making an initial public offering. They also know that they need to complete the process within 28 weeks because they need the new capital fairly soon to ensure that InterCat has the resources to capture valuable new business from its competitors and continue growing. They also value a speedy initial public offering because they believe that the window of opportunity for obtaining a good stock price is presently wide openthe public is wild about shopping on the Internet, and few companies offering Web page design services have gone public.

Because the 28-week deadline is breathing down their necks, Janet and Gilbert decide to map the steps in the process of making an initial public offering. They list each major activity that needs to be completed, the activities that directly precede each activity, the time needed to complete each activity, and the cost of each activity. This list is shown below.

Janet and Gilbert present the list of steps to the employees of InterCat. The head of the finance department, Leslie Grey, is fresh out of business school. She remembers the various project management tools she has learned in business school and suggests that Janet and Gilbert use Critical Path Method (CPM) analysis to understand where their priorities should lie.

Managerial Report

Perform an analysis of the problem and prepare an executive summary that outlines your findings and recommendations. Be sure to include the following items:

(a) Draw the project network for completing the initial public offering of InterCat stock. How long is the initial public offering process? What are the critical steps in the process?

(b) How would the change in the following activities affect the time to complete the initial public offering? Please evaluate each change independently.

(i) Some members of the syndicate are playing hardball. Therefore, the time it takes to negotiate the commitment of each member of the syndicate increases from 2 to 3 weeks.

(ii) The underwriters are truly math geniuses. Therefore, the time it takes to calculate the issue price decreases to 4 weeks.

(iii) Whoa! The SEC found many deficiencies in the initial registration statement. The underwriters must therefore spend 2.5 weeks amending the statement and resubmitting it to the SEC.

(iv) The new issue does not comply with the blue sky laws of a handful of states. The time it takes to edit the issue for each state to ensure compliance increases to 4 weeks

Activity Preceding Activities Time Cost Evaluate the prestige of each potential underwriter 3 weeks 8,000 Select a syndicate of underwriters. Evaluate the prestige of each potential underwriter 1.5 weeks 4,500 Negotiate the commitment of Select a syndicate of each member of the syndicate. underwriters. 2 weeks 9,000 Negotiate the spread* for each member of the syndicate. elect a syndicate of underwriters. 3 weeks $12,000 Prepare the registration statement including the proposed financing and information about the firm's history, existing business, and plans for the future Negotiate both the commitment and spread for each member of 5 weeks $50,000 the syndicate. Submit the registration statement to the Securities andstatement. Exchange Commission (SEC) Prepare the registration 1 week 1,000 Activity Preceding Activities Time Cost Make presentations to institutional investors and develop the interest of potential buyers. Submit the registration statement to the SEC. 6 weeks $25,000 Distribute the preliminary prospectus affectionately termed the red herring Submit the registration statement to the SEC. 3 weeks $15,000 Calculate the issue price. Submit the registration statement to the SE. 5 weeks $12,000 Receive deficiency memorandum from the SEC. Submit the registration statement to the SEC. 3 weeks$ 1 week Amend the registration statement and resubmit the SEC. Receive deficiency memorandum from the SEC. S 6,000 it to Receive registration confirmation from the SEC Amend the registration statement and resubmit it to the 2 weeks$ SEC. Confirm that the new issue complies with the "blue sky" laws of each state. 1 week Make presentations to institutional investors and develop the interest of potential bu $ 5,000 yers. Distribute the preliminary prospectus affectionately termed the red herring Calculate the issue price Receive registration confirmation from the SEC. Receive registration confirmation from the SEC. Appoint a registrar 3 weeks $12,000 Appoint a transfer agent. 3.5 weeks $13,000 Receive registration confirmation from the SEC. Issue final prospectus that includes the final offer price and any amendments to all Confirm that the new issue complies with the "blue sky" laws of each state. Appoint a registrar and transfer agent. 4.5 weeks $40,000 urchasers offered securities through the mail Phone interested buyers. Confirm that the new issue complies with the "blue sky" laws of each state. Appoint a registrar and transfer agent. 4 weeks S 9,000 *The spread is the payment an underwriter receives for services. Activity Preceding Activities Time Cost Evaluate the prestige of each potential underwriter 3 weeks 8,000 Select a syndicate of underwriters. Evaluate the prestige of each potential underwriter 1.5 weeks 4,500 Negotiate the commitment of Select a syndicate of each member of the syndicate. underwriters. 2 weeks 9,000 Negotiate the spread* for each member of the syndicate. elect a syndicate of underwriters. 3 weeks $12,000 Prepare the registration statement including the proposed financing and information about the firm's history, existing business, and plans for the future Negotiate both the commitment and spread for each member of 5 weeks $50,000 the syndicate. Submit the registration statement to the Securities andstatement. Exchange Commission (SEC) Prepare the registration 1 week 1,000 Activity Preceding Activities Time Cost Make presentations to institutional investors and develop the interest of potential buyers. Submit the registration statement to the SEC. 6 weeks $25,000 Distribute the preliminary prospectus affectionately termed the red herring Submit the registration statement to the SEC. 3 weeks $15,000 Calculate the issue price. Submit the registration statement to the SE. 5 weeks $12,000 Receive deficiency memorandum from the SEC. Submit the registration statement to the SEC. 3 weeks$ 1 week Amend the registration statement and resubmit the SEC. Receive deficiency memorandum from the SEC. S 6,000 it to Receive registration confirmation from the SEC Amend the registration statement and resubmit it to the 2 weeks$ SEC. Confirm that the new issue complies with the "blue sky" laws of each state. 1 week Make presentations to institutional investors and develop the interest of potential bu $ 5,000 yers. Distribute the preliminary prospectus affectionately termed the red herring Calculate the issue price Receive registration confirmation from the SEC. Receive registration confirmation from the SEC. Appoint a registrar 3 weeks $12,000 Appoint a transfer agent. 3.5 weeks $13,000 Receive registration confirmation from the SEC. Issue final prospectus that includes the final offer price and any amendments to all Confirm that the new issue complies with the "blue sky" laws of each state. Appoint a registrar and transfer agent. 4.5 weeks $40,000 urchasers offered securities through the mail Phone interested buyers. Confirm that the new issue complies with the "blue sky" laws of each state. Appoint a registrar and transfer agent. 4 weeks S 9,000 *The spread is the payment an underwriter receives for services