FINA6000 Managing Finance – Assessment 3 – Case Analysis

Context:
You are expected to prepare a 2 000 word research-based case analysis.

The Case Analysis assesses your understanding of capital raising by Australian companies through an initial public offering (IPO) and its impact on a firm’s performance. The focus is on the following puzzles identified in the academic literature concerning IPOs:
1) Costs of IPOs are very high.
2) On average, IPOs appear to be underpriced.
3) The medium to long-run performance of a new public company (3 – 5 years from the date of issue) is poor.

Instructions:
(a) You are required to identify Initial Public Offerings (IPOs) on the Australian Securities Exchange (ASX) of an amount of at least $50 million that occurred during the 8-year period from 2007 to 2013. Using information from the company’s prospectus, annual reports, and other sources such as analysts’ reports, discuss the reasons why the IPO was undertaken. (15 marks)

(b) Using academic literature and evidence from Australian IPOs in general and the selected IPO, critically evaluate the statement: “IPOs are a costly way of raising long-term finance for corporations”. (10 marks)

(c) With reference to your selected IPO, empirically verify the extent of underpricing by comparing issue prices and closing share prices at the end of the first day of trading on the ASX. (10 marks)

(d) Companies use IPOs for different reasons such as converting a private company to a public company, spinning off a business of an existing listed company, or privatization of a public company. Despite these different objectives, the underlying motivation would be to increase shareholder value. It has however been argued that IPOs seem not to add value given that on average the share price performance of companies in 3-5 years after the IPOs is poor. Evaluate the argument using data gathered about your chosen company. Critically evaluate and comment on the performance of its share in the 3 to 5 years after being listed on the ASX.
(15 marks)

(e) Analyse the dividend payout policy of your chosen organization over a period of 3 years starting from the IPO date, using information from the annual reports and other relevant sources. Based on the dividend policy, comment on whether the organization seems to be more focused on growth or on providing a stable income to its investors. Comment on whether there was any chance of the strategy over the analyzed period.
(10 marks)

In addition to the above, you will also be assessed on the following: (see Grading Rubric at the end for more description of expectation).
(f) Content, Audience, and Purpose (5 marks)
(g) Critical reasoning, presentation, and defense of an argument and/or position (10 marks)
(h) Analysis and Application with the synthesis of new knowledge (15 marks)
(i) Use of academic conventions and sources of evidence (5 marks)
(j) Effective communication (5 marks)