...IPO Pricing for Boston Beer Company Inc. Case Summary We address the following key questions regarding Boston Beer Company (BBC) to explore the issues surrounding its Initial Public Offering. First of all, we determine the fair value of BBC to be $211 million based on a DCF valuation of projected future cash flows and explain our key assumptions and potential problems arising from those assumptions. Second, we find BBC’s fair value to be $314 million by relative valuation and discuss how differences in operating strategies might translate into differences in financial ratios. Third, we determine BBC’s IPO price to be $15 per share. Finally, we look at the craft brewer industry as a whole and we find that it may be overvalued by the market. PART I: DCF Valuation In our intrinsic valuation approach, Boston Beer Company’s future free cash flows of the next ten years are projected in the spreadsheet. Present value of the company at the end of 1995 is calculated by discounting ten year’s free cash flows and terminal value by weighted average cost of capital. As we can see from the spreadsheet, the company fair value is $210.78 million. Subtracting the debt level of $1.95 million, the equity value is therefore $208.83 million. Appendix 1 includes the full valuation model we used. The key assumptions we made and the calculation methods we used are listed as follows: BBC’s annual sales growth rates from 1992 to 1994 are 63.55%, 60.14% and 48.84% respectively...
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...governance variables and IPO pricing. Results show that managerial ownership is positively related to both offer price and market price premium, which is consistent with a high level of managerial ownership reducing agency costs leading to a closer alignment of interests between managers and shareholders. High blockholder ownership is positively related to offer price premium but not market price premium which implies that underwriters, but not investors, perceive that the quality of the IPO is associated with blockholder ownership. Board size is negatively associated with both measures of IPO pricing, suggesting that smaller boards are better. The other conventional corporate governance variables are not significant. Family ownership and family management are negatively related to both offer price and market price premium, which is consistent with the suggestion that the lack of separation of ownership and management causes family-controlled firms to suffer from cloudy financial vision, resulting in a negative relationship with pricing. However, family chairman is positively associated with offer price premium which implies that underwriters view family leadership on the board as beneficial. The other family governance variables are not significant. None of the board expertise variables examined are significantly related to IPO pricing. I. Introduction The launching of an initial public offering (IPO) is a pivotal event in a firm's history. In the pre-IPO period, firms tend...
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...Rosetta Stone: Pricing the 2009 IPO In the following case study we intend to analyse Rosetta Stone’s 2009 IPO. The main purpose is to come up with a reasonable estimate of the price at which the firm’s shares should be initially offered. This estimation is preceded by a general consideration of the advantages and disadvantages that going public might have for Rosetta Stone. Following this qualitative analysis, we then estimated the price at which Rosetta Stone’s shares should be offered in the 2009 IPO. In order to do so, we first determined the current market price for shares of the firm by employing a market multiples as well as discounted cash flow valuation. On the basis of these values, we estimated the IPO price and then gave a final recommendation regarding the price in which we also considered factors beyond the pure numbers, such as the difficult market environment. 1. Advantages of going public First of all, the IPO would help Rosetta Stone raise equity, giving the company the opportunity for further investment with the aim of establishing its brand globally and expanding its geographic outreach. As a publicly traded company, Rosetta Stone will receive more exposure to both national and the international capital markets, creating the opportunity to reach more investors. For example, the planned stock market listing would allow institutional customers, who currently represent 20% of Rosetta Stone’s customer base, to buy shares. Another important advantage of going...
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...UNIVERSITY OF OREGON INVESTMENT GROUP 4-30-2010 Consumer Goods Rosetta Stone Inc. RECOMMENDATION: BUY Stock Data Price (52 weeks) Symbol/Exchange Beta Shares Outstanding Average daily volume (3 month average) Current market cap(M) Current Price Valuation (per share) DCF Analysis Comparables Analysis Current Price Target Price Summary Financials 2009A ($M) Revenue Net Income Operating Cash Flow $252 $13.4 $41.1 $16.06- 32.97 RST / NYSE .65 19.9 287,505 $569 $26.25 $31.88 (50% weight) $37.10 (50%) $26.25 $34.49 CORPORATE SUMMARY Rosetta Stone Inc. (RST) joined the public markets in the spring of 2009. As of the end of their fiscal year 2009 they reported $252 million in sales, while also growing profits at 54 percent year over year. The company’s goal is to create a program that surrounds their customers directly with the language, without translation. Their proprietary teaching method called Dynamic Immersion has been the key driver for the company’s recent growth. They offer courses in 31 languages to a large customer base, ranging from government officials to armed forces. RST has offices in Virginia, London, Tokyo, Colorado and other various locations around the world. The focus point going forward is to keep up with growing international demand whiling continuing to enhance their proprietary curriculum. Covering Analyst: Matthew Hollands Email: Mhollan1@uoegon.edu The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is...
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...IPO Pricing of NESTLE Global for the Capital Market of Bangladesh: IPO pricing of Nestle Global for the Capital Market of Bangladesh [For the partial fulfillment of B.B.A. program in Finance] Submitted to Department of Finance University of Dhaka Supervised by Shakila Halim Lecturer Department of Finance University of Dhaka Submitted by Md. Sohebur Rahman Roll: 17-055 Sec: A B.B.A.17th Batch Department of Finance University of Dhaka Date: 7th May, 2015 Letter of Transmittal 07th May, 2015 Chairman Exam Committee B.B.A. 17th batch Department of Finance University of Dhaka Subject: Submission of Internship Report on “IPO pricing of Nestle Global for the capital market of Bangladesh” Sir, I hereby, want to express my sincere gratification to submit my internship report on “IPO pricing of Nestle Global for the capital market of Bangladesh” Through the preparation of the report, I got an opportunity to apply my knowledge of B.B.A. program and to be acquainted with the practical field. I have given all the efforts to make this report a purpose serving one. I hope that you will appreciate my efforts and accept the submission of my report. Sincerely yours, Md. Sohebur Rahman Roll: 17-055 Sec: A B.B.A 17th Batch Department of Finance University of Dhaka Acknowledgement At the very beginning, I would like to express my sincere gratitude to Almighty Allah, who has given me the chance to complete my internship report in a very...
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...1. The largest difference in the costs is the definitely the reduced possibility of under pricing in a Dutch auction. I cannot determine which one is better than the other. In theory, the Dutch auction should be better since it should eliminate under pricing. According to Google shows, under pricing can still exist in a Dutch auction. Whether the under pricing is a severe in a Dutch auction as it would be in a traditional underwritten offer is unknown. 2. There is no type of formula I can determine who is more correct. Dan and Larissa will have to see where things stand a few years down the road and base it off of performance. The biggest disadvantage of raising the extra cash in the IPO includes the agency costs of excess cash. The extra cash may encourage management to act carelessly. The extra cash will also earn a small return unless invested in income producing assets. At best, cash and short-term investments are a zero NPV investment. The advantages of the increased IPO size include the increased liquidity for the company, and the lower probability that the company will have to go back to the primary market in the near term future. The increased size will also reduce the costs of the IPO on a percentage of funds raised, although this may not be a large advantage. 3. The underwriter fee should be around 7 percent of the amount raised: Underwriter fee = $70,000,000(.07) Underwriter fee = $4,900,000 The company should currently provide audited financial...
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...inherently complex and uncertain. The main problem Biopure faced was whether to launch Oxyglobin now, or wait until Hemopure was approved and launch both products simultaneously. This was a complex problem as the early launch of Oxyglobin would have both positive and negative repercussions for Biopure. These repercussions needed to be carefully analysed in order to decide what the best course of action is. Another problem was that Biopure had competitors with similar human blood substitute products in the pipeline 3 . Biopure have to consider how to position and price their products in relation to their competitors. An additional problem exists in the pricing of Oxyglobin and Hemopure in order to appeal to their respective markets4. Lastly, Biopure has no current cashflow and therefore needs to be successful with its upcoming IPO in order to raise the requisite cash and solidify its future5. Analysis Human blood is an extremely important commodity as it is used for blood transfusion procedures. However, blood collection is becoming increasingly difficult because donor rates are falling and a lot of collected blood is being discarded due to contamination or expiry6. Biopure identified a need for a “blood substitute” product which would provide the following benefits7: 1) eliminate the need for...
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...Background - Biopure is planning to introduce two new blood substitutes: Hemopure for human market and Oxyglobin for animal market. Oxyglobin, expected to command $150-$200 per unit, is already FDA approved whereas Hemopure, expected to command $600-$800 per unit, has entered final stage of clinical trials. The main issue is whether to launch Oxyglobin now and Hemopure later when it receives FDA approval or wait until Hemopure is approved, launched and established as a product and then launch Oxyglobin. The reason for concern is that some members in Biopure management feel that releasing Oxyglobin first will jeopardize the high price that Hemopure will eventually command. Market Potential for Oxyglobin and Hemopure– The potential market for Oxyglobin is significantly smaller than that for Hemopure, yet both are attractive because demand for blood exceeds supply. Absence of competitive products, lack of adequate blood banks for animal market, low cost advantage of just $1.50 per unit of blood against its competitor and the fact that its blood substitutes eliminates the need for storage and refrigeration makes BioPure an attractive option for both primary care and emergency care vet practices. The total potential for the animal market is 354,750 units per year. Since production of Oxyglobin is limited to 300,000 units per year, the total potential revenue generated by Oxyglobin could be projected at (300,000 units * $150) = $45M. In contrast, demand for blood substitutes in...
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...SUMMER 2007 V O L . 4 8 N O. 4 Arvind Sahay How to Reap Higher Profits With Dynamic Pricing Please note that gray areas reflect artwork that has been intentionally removed. The substantive content of the article appears as originally published. REPRINT NUMBER 48415 pricing How to Reap Higher Profits With Dynamic Pricing S un Microsystems Inc. chairman Scott McNealy forecast that “With recent advances in wireless and information technology, even our cars could … call for bids whenever the fuel tank runs low, displaying a list of results from nearby gas stations right on the dashboard.”1 It sounds far-fetched. But dynamic pricing — where prices respond to supply and demand pressures in real time or near-real time — is making inroads in many different sectors, including apparel, automobiles, consumer electronics, personal services (such as haircuts), telecommunications and second-hand goods. The advent of the Internet led to cost transparency, decreased search costs and ease of price comparison. Some observers concluded that as a result, prices would decrease and equalize across different channels, and that fixed prices would continue to be the norm.2 However, price dispersion continues to be widespread and dynamic pricing is entering new sectors. EBay Inc. used auctions to sell more than $20 billion worth of goods in 2005. Ford Motor Co. sold more than $50 billion worth of automobiles in North America with demand-based DP in 2003...
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... Arvind Sahay How to Reap Higher Profits With Dynamic Pricing Please note that gray areas reflect artwork that has been intentionally removed. The substantive content of the This document article appears as originally published.is authorized for use only by Neelu Bhullar at MANAGEMENT DEVELOPMENT INSTITUTE until REPRINT July 2013. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860. NUMBER 48415 pricing How to Reap Higher Profits With DynamicPricing un Microsystems Inc. chairman Scott McNealy forecast that “With recent advances in wireless and information technology, even our cars could … call for bids whenever the fuel tank runs low, displaying a list of results from nearby gas stations right on the dashboard.”1 It sounds far-fetched. But dynamic pricing — where prices respond to supply and demand pressures in real time or near-real time — is making inroads in many different sectors, including apparel, automobiles, consumer electronics, personal services (such as haircuts), telecommunications and second-hand goods. The advent of the Internet led to cost transparency, decreased search costs and ease of price comparison. Some observers concluded that as a result, prices would decrease and equalize across different channels, and that fixed prices would continue to be the norm.2 However, price dispersion continues to be widespread and dynamic pricing is entering new sectors. EBay Inc. used auctions to sell more...
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...1) Pharmaceutical Industry in India: India is the third largest pharmaceutical market in the world in terms of volume. The market is believed to grow at a compound annual growth rage (CAGR) of 14-17 percent in between 2012-16. There has also been a considerable growth in the levels of pharmaceutical exports from India. The industry started picking momentum in the early 1960s, with government actively encouraging the sector with the Patents Act. However, the liberalization of 1991 enabled the industry to become what it is today. Many of the Indian companies principally observe reverse engineering of the new processes for manufacturing drugs at low costs. Although some of the companies have taken baby steps towards innovating newer drugs, the industry as a whole tends to follow this business model. The lack of patent protection, on the other hand, makes India undesirable for multinational companies that have dominated the market. So the pharmaceutical market in India has a tremendous potential for indigenousness. In this context, comparing a global pharmaceutical company with its Indian counterpart becomes evident. GlaxoSmithKline and Ranbaxy: A Comparison GlaxoSmithKline is a British multinational pharmaceutical company also dealing in biologics, vaccines and consumer healthcare. Headquartered at London, it is the world’s sixth largest pharmaceutical company. The company was established in 2000 by the merger of Glaxo Wellcome and SmithKline Beckman Corporation. A giant...
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...INTRODUCTION Air blue is a private Pakistani airline based at Jinnah International Airport Karachi. It started its operations on May 24, 2004. It was the first private carrier of Pakistan to operate the Airbus A320 when it initially started. Air blue has been expanding rapidly despite experiencing competition from the other three airline operators in Pakistan. The airline mainly flies on domestic routes plus internationally to Dubai International Airport and also has plans to fly to the Gulf, UK, and USA. MISSION STATEMENT Air blue will be recognized as the most progressive enterprise in the transportation business. We will offer our customers cost effective transportation service within geographical areas and market segments that can benefit from our services and will insure a return on investment and growth rate consistent with current management guidelines. VISION STATEMENT Our vision is to make Air blue the most admired airline in the world. * Ensuring safety comes first * Providing Service Straight from the Heart * Encouraging product leadership * Delivering superior financial returns * providing rewarding career opportunities SWOT ANALYSIS of AIR BLUE: The SWOT analysis is the process of analyzing organizations and their environments based on their strengths, weaknesses, opportunities and threats. This includes the environmental analysis, the process of scanning the business environment for threats and opportunities, which is considered...
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...Project Part 4 11/13/2012 “Consumers Change Their Behavior in Response to the Gas Prices” The article starts by talking about how higher gas prices and higher tolls ultimately did what Mayor Bloomberg’s ambitious congestion pricing was supposed to do. When gas prices climbed to more than 4 dollars per gallon, traffic on bridges and tunnels dropped 4.7 percent compared with the previous years. While at the same time, subway, bus and commuter train riders increased by 6.5 percent. From Manhattan to New Jersey there was a 9 percent increase of people taking the train. That goes to show you that pricing does matter and people do respond to it. And do to the higher gas prices and people driving less tolls took a major hit 4 million below budget. The fact that the price elasticity of demand for a product such as gas will be larger the longer the period of time involved. It takes buyers time to adjust their routines as a result of a change in price. Consumers began to explore alternatives to driving when gas rose over 4 dollars a gallon. So if high gas prices persist consumers will make adjustments, such as driving less and taking public transportation more. Those demand for gasoline will become the more elastic. There for demand becomes more elastic other longer period of time and the quantity of gas demanded will decline further. Thinking Critically 1. I don’t 100% agree with Joe, yes sure initially you’ll make up the loss in quantity sold with the higher price. But if...
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...Resellers Benefits of Becoming a Reseller Reselling new products to an existing customer base is a quick and easy way to grow your business and maximise the revenue potential for each existing customer. Adding new products or services to your business can help you win new customers and expand into new territories. An expanding business portfolio increases value benefits for all customers and increases customer satisfaction experienced, encouraging repeat sales and loyalty. If you are considering starting a business can you become a reseller of a product or products that have already been researched and developed significantly reducing your capital outlay and risk. If you are a small business or are starting out in business you can resell products for larger companies that have the resources to support and maintain them after the point of sale enabling you to increase your revenues without increasing your ongoing work load. The ability to resell products or services online with out the need for stock or premises means makes it possible to start as business as a reseller from home with virtually no risk or investment. By finding merchants on The Reseller Network you may be able to resell for international companies at better rates enabling you to maximise your revenue. The cost of marketing to generate product and brand awareness is reduced by the collaboration of reseller partnerships promoting the same products or services. How to become a reseller Register as a reseller with...
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...really enjoy the driving experience Successful businessman and governor who usually lie in better neighborhoods Trucks and Buses SCANIA, MAN Target: big enterprise and government Public transportation group Financial Services: Target: conservative people who paying closer to the total cost of mobility People who decide just to use a car not buy one The car buyers who need financing and insurance Price Volkswagen has consistently acted with a premium pricing strategy. Their products typically have a high price, on average 10 percent higher than competitors (reference: consumer report by Volkswagen, 2012); however, the return is more upscale driving and ownership experience. In recent years, their pricing strategy has decreased to only 5 percent higher (reference: the interview with the PR president). This decrease in price was due in fact to the belief among consumers that Volkswagen passenger cars are too expensive for the quality delivered. Their premium pricing strategy has caused them to lose some market share to competitor brands. This was not a substantial problem in the past,...
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