JetBlue IPO – Case Study

IPO Process
An initial public offering (IPO) is selling traded equity to the public on a securities exchange for the first time. The initial public offerings are used by companied to raise additional capital, and to transform from a private company into a public company. The IPO process is as follows. 1. Selecting an underwriter 2. Due diligence 3. Preliminary registration 4. SEC review 5. Road show and book building 6. The offering settlement
There are many advantages and disadvantages of going public through an IPO.
Advantages
Increased capital from public offering * Increased liquidity * Public market creates shareholders’ value * Facilitates merger & acquisition – shares can be used instead of cash * Accelerates company’s growth * Increased recognition * Employee stock options are valuable
Disadvantages
* Costs and time demands – costs associated with reporting could be significant and more time needed for statements preparations. * Information disclosure – information may be visible to competitors. * Financial reporting and administration burdens of complying with SEC * Control – managements may experience loss of control. * Increased risk of shareholder litigation * Increased restrictions
The issue of JetBlue
The issue is that there is a debate among the JetBlue management about the appropriate pricing of the IPO. The analysts reported that demand exceeded supply, and given such a high demand, some members believed that raising the price would be a good choice. While in management’s view, they believed that discounting the stock price would ensure a successful deal. Therefore, different approaches will be analyzed, and recommendations would be given for JetBlue’s share price.
Approaches to value JetBlue’s shares
Price-to-earnings ratio valuation