CHICKEN IPO

VALUATION AND NEGOTIATION

FIN 433 WINTER 2016

PROFESSOR GREGG JARRELL

Introduction

Chicken is a private consulting firm that collects, stores, and analyzes “big data” for large corporations and governments. Chicken was founded in 2008 and had 2014 Sales of $516,302 and EBIT of $206,521. Chicken is planning to become a public firm via an Initial Public Offering (IPO) in which it will sell 100,000 newly-issued common shares to the US investing public at a pre-specified IPO price, and after the IPO it will be traded publicly on the NASDAQ Exchange at a post-IPO market price. Chicken currently has 100,000 shares of common stock outstanding (F shares) that are worth $20 per share before the IPO, all of which are owned by the Founding Shareholders (Founders). Simultaneously with the IPO, Chicken management will purchase 100,000 newly-issued common shares for a pre-specified Exercise Price. All shares of common stock have the same rights to dividends, liquidation, and votes on a per-share basis. All teams must first prepare Reports that perform a DCF valuation of Chicken and explain in detail your team’s strategy for the Negotiation Phase. Reports are due Wednesday, February 3, at 3:00 PM. The Negotiation Phase begins Wednesday, February 3 at 4:30 PM and ends Saturday, February 6 at 10:00 PM.

Team Roles and Goals

There are 4 team roles in this case. F Teams will represent the Founders who own the F shares. B Teams (Bank) will represent the new IPO shareholders, who are the clients of the investment banker. M Teams will represent the Management. Moreover, there are two kinds on Management Teams. Red Management Teams (RM) must set the IPO Price and Exercise Price equal in their deals, whereas Green Management Teams (GM) may set the IPO Price and Exercise Price to be unequal. The IPO and Exercise Price can be no less than $20 per