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Read the above documents and the IPO book (e-copy available on Blackboard)
to a
Read the above documents and the IPO book (e-copy available on Blackboard)
to answer the following questions. You may wish to use external
references/material from credible sources (such as financial press, journal
articles):
(i) An IPO marks a strategic milestone for a company.
(a) Explain the generic benefits and drawbacks of going public.
(b) What may have motivated Ferrari (Ticker symbol ‘RACE’) to go public?
(c) Why do you think Ferrari chose to list on New York Stock Exchange?
(d) What can you say about the primary and secondary shares sold in the
Ferrari IPO? (16 marks)
(ii) What is an IPO over-allotment (Greenshoe) option? Did Ferrari include such an
option in its IPO? (6 marks)
(iii) The underwriting investment bank takes on a central role in the IPO process.
(a) What are the key tasks executed by the underwriter?
(b) What are primary considerations when selecting an underwriter?
(c) Often, multiple underwriters are involved. In the case of Ferrari, a
syndicate of 7 underwriters was involved in the IPO. What are the main
motivations for syndication?
(d) How much compensation was paid to the underwriters of Ferrari? Do you
think it is comparable to the average compensation paid to underwriters in US
IPOs?
(e) What do you understand by ‘price-stabilization’ activities conducted by the
underwriter(s)? Do you think the underwriters were involved in pricestabilization of the Ferrari IPO? (25 marks)
(iv) Describe what happens during ‘book-building’ of an IPO. What price range was
used for book building of the Ferrari IPO? Why do you think Ferrari priced its offering
at the top end of the book-building range? (10 marks)
(v) Based on the information given in the case study and the IPO prospectus,
discuss the pricing of the Ferrari IPO. Would you have invested in Ferrari at this
price? (10 marks)
(vi) What are IPO lock-up agreements? Describe the lock-up agreement of the
Ferrari IPO. (5 marks)
(vii) The diagram below shows the performance of Ferrari shares from October 2015
to September 2019. The first day of public trading of RACE shares was 21 October
2015. Shares were sold in the IPO at an offer price of $52. More information on daily
share price movements is available in the Excel file (RACE shareprice).
Based on a visual examination of the chart above, how does the performance of the
Ferrari IPO compare with average IPO performance documented by past empirical
studies
i. in terms of the short term (1st trading day)?
ii. and over the longer term (4 years)?
Past studies have suggested several explanations for short-run underpricing and
long-run underperformance of IPOs. Discuss the ones which you think are relevant
to Ferrari’s case? (16 marks)
(viii) In the light of the main theories of capital structure, provide a discussion of the
evolution of the capital structure of Ferrari since its IPO. You will find the Annual
Report 2018 helpful in answering this question
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