Business Accounting and Finance - Ferrari: The 2015 Initial Public Offering

Business Accounting and Finance
‘Ferrari: The 2015 Initial Public Offering’
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Business Accounting and Finance
Table of Contents
Introduction.................................................................................................................................3
i...................................................................................................................................................3
a) Drawbacks and benefits related to going public......................................................................3
b) Motivation to go public for Ferrari........................................................................................3
c) Reason for going public by Ferrari using the (NYSE).............................................................4
d) Details of shares sold in Ferrari’s IPO: whether secondary or primary......................................4
ii. Meaning of Greenshoe option and whether such option was inclusive in Ferrari’s IPO.................4
iii. Underwriting.......................................................................................................................5
a) Key tasks to be performed by Underwriter.............................................................................5
b) Primary considerations for Underwriter’s selection................................................................5
c) Reasons for Syndication.......................................................................................................5
d) Underwriters’ Compensation................................................................................................5
e) Price-stabilization................................................................................................................6
iv. Book-building.....................................................................................................................6
v. Discussion about Ferrari’s pricing of IPO.................................................................................7
vi. Lock-up agreements of IPO..................................................................................................8
vii. Comparison of IPO performance...........................................................................................8
i. In short-term.......................................................................................................................8
ii. In Long-term.......................................................................................................................8
vii. Evolution of capital structure of Ferrari.................................................................................9
Conclusion................................................................................................................................10
References..................................................................................................................................12
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Business Accounting and Finance
Introduction
This report divulges the key information of the related to the initial public offer and further public offer
related to the public issue. In this report, motivational to the public limited company by the Ferrari and
other associated factors related to the underwriter has been taken into consideration. In addition to this,
key aspects related to the retaining, attracting and rewarding the talented management and technical
people in the organization by providing perks of direct ownership through shareholding has been
divulged. Furthermore, IPO is underperforming in the long run only when the share prices reflected
after the first trading day tend to be lower than the trading day price. Certain theories have proven this
concept based on evidence from certain countries have been divulged. In the end, the capital structure
of the company reveals that it has high financial leverage and due to the increased profitability, it has
less impact on the profit charges. This shows the financial structure and possible changes in the capital
of the company has been taken into consideration.
i.
a) Drawbacks and benefits related to going public
Benefits
 Capital can be raised quickly as the quantum of investors reached is large.
 The chances of generating publicity are huge as by going public, even the lesser popular
organizations come frequently in conversation because of their IPO.
 Indirectly, the brand of the company initially grows because of being listed on well-known
stock exchanges (The Motley Fool, 2016).
Drawbacks
 The process of going public is an expensive process concerning both the monetary cost and
time taken.
 By being a public company, additional disclosure requirements get attached to the
organization, which again is costlier to follow (The Motley Fool, 2016).
b) Motivation to go public for Ferrari
Several opportunities available ahead of Ferrari after going public which motivated the organization is:
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Business Accounting and Finance
 Extension and promotion of brand name in the global luxurious and premier lifestyle
corporations.
 Accessibility to debt and equity capital for Ferrari on favorable covenants.
 Retaining, attracting and rewarding the talented management and technical people in the
organization by providing them perks of direct ownership through shareholding.
c) Reason for going public by Ferrari using the (NYSE)
Ferrari since the initial success had been a vendor of handmade cars and later on other variants to
various Americans. The company’s clients comprise of wealthiest families based in America and even
included, princes, and kings. The company through the NYSE wanted to aim upon these clients and
other important American investors, as America always was a very crucial market for Ferrari. Hence,
NYSE was chosen.
d) Details of shares sold in Ferrari’s IPO: whether secondary or primary
The IPO was undertaken by FCA as a means to separate Ferrari to operate it as a distinct entity.
Resultant, through the IPO, 17.175 million secondary shares of the organization Ferrari were initially
sold, which ranged to around the company’s 9% share capital. These are secondary shares only as prior
to this IPO, these shares are held by the current selling shareholder of them, i.e. “Fiat Chrysler
Automobiles” N.V. (FCA). These are not primary shares for Ferrari as no proceeds out of them shall
belong to Ferrari.
ii. Meaning of Greenshoe option and whether such option was inclusive in Ferrari’s IPO
Through this option the underwriters of the issue can sell additional shares (not more than 15% of
issue) during an issue using the IPO option. A special agreement is required to be contracted between
the underwriters and the issuer for the same. However, generally, the option has to be exercised by the
underwriters within 30 days after which offer have been made. This practice is usually followed to
legally stabilize the initial pricing of the offer (Ribeiro, 2008).
Did Ferrari provided its underwriters with Greenshoe option?
However, Ferrari has also provided its underwriters the greenshoe option. The underwriters are allowed
to sell 1,717,150 shares additionally within 30 days from prospectus’s offering if their exists over-
allotments.
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