Question 7

Consider the following information from the Bubble.com IPO prospectus and finance.yahoo.com:

- Bubble.com is offering 10,000,000 shares of Class A common stock and the selling stockholders are offering 30,000,000 shares of Class A common stock. The initial public offering price is $28.00 per share. The issue is placed through a firm commitment offering. The investment banks receive an underwriting spread of 7% for their commitment to sell the shares.

- Following the offering, Bubble.com will have two classes of common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to hundred votes per share and is convertible at any time into one share of Class A common stock. After the issue, Bubble.com has 40,000,000 issued shares of class A common stock.

- The selling stockholders have granted the underwriters the right to purchase up to an additional 3,000,000 shares to cover over-allotments.

- Bubble.coms stock (NASDAQ ticker: DOWN) closed at $16.52 after the first trading day

a. How many shares are offered to the public, excluding the over-allotment option?

b. What part of the proceeds goes to Bubble.com, to the selling stockholders, and to the investment bank consortium? State your answer in dollar terms.

c. Is there a greenshoe option? If so, what is the additional percentage of shares that can be offered?

d. Is there underpricing for Bubble.coms stock? If so, how large is it?

e. Regardless of whether there was underpricing or not, what do you think of the terms of this IPO? Would you invest in this company?