2- Answer the questions using the table below Money Left On The Table Lead Under

Question

2- Answer the questions using the table below Money Left On The Table Lead Underwriter Offer Pricing Firs First Price aluation Trade Trade Company Money on the (mil.Price Yalation Table Credit Suisse Securities $21.00 $870.8 $30.00 $1,244.0 $373.2 (USA) LLC Grupo Aeroportuario del Pacífico, S.A. de C.V Tim Hortons Inc Chipotle Mexican Grill, Inc.Morgan Stanley & Co. Goldman, Sachs & Co. $23.16 $671.7 $31.95 926.5 $254.9 $22.00 $173.3 $45.00 $354.6 $181.2 Incorporated Piper Jaffray & Co Citigroup Global Markets Crocs, Inc. $21.00 $207.9 $30.00 $297.0 $89.1 Ternium S.A $20.00 $496.9$23.05 $572.7 $75.8 a- Choose one underpriced company from the table above and compute “Money left on the table" by yourself using the information from table. Comment on this left money from the point of CEO of the company and also underwriter b- What do you understand by "lead underwriter"? Explain (Hint: Why do they put "lead underwriter" instead of just "underwriter")

Explanation / Answer

Underpriced Company : Underpriced company is company of which stock are selling at significantly below prices than what is assumed to be its intrinsic value. So in above list of companies, company Chipotle Mexican Grill Inc appears to be underpriced company. Its first day trade price is $45 and offer price is $22. Underpriced % valuation is calculated by taking difference between offering price and fist day trade price. For Chipotle, underprice % will be:

Offer price : $22; First day trade price : $45

Underpricing : (45-22)/22=104.55%

Money left on the table is the difference between first day closing price and offering price, mulitplied by number of shares. Number of shares for Chioptle traded on first day are: first day trade valuation divided by first day trade price:

$354.6/$45=7.88 milliom shares traded on first day.

So MLOT = 45-22*7.88=$181.24

From CEO perspective: More money left on the table for CEO means less financail benefit than expected.

From Underwriter perspective: Underwriters share in the risk of underpricing an offer, because they ultimately have to sell all the shares at the offer price. Underwriters often mitigate the risk of underpricing though it would receive less comminsion/fee for its underpricing.

b: Lead Underwrited: When company decides to issue stocks or any publicy traded activity, it hires underwriter.And at the first stage underwriter and company decides offering structure. And after structure is decided, underwriter usally assembles as syndicate to manage risk, mainly in larger offerings. So syndicate is a group of other investment banks and brokerage firms that commit to sell a certain percentage of the offering (also called a guaranteed offering because the underwriters agree to pay the issuer for 100% of the shares, even if they can’t sell them all). The lead is the underwriter, which has the responsibility for assembling and managing the syndicate throughout the process.

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