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FIN 423 Case 1 -- IPO Pricing Winter 2008
(c) Prof. G. William Schwert, 1998-2008 1
FIN 423IPO Cases, 1992-present
Some cases are for IPOs that have already happened, some are "real-time"
Teams are assigned to represent eitherTeams are assigned to represent either management or underwriters
Two phases:•negotiation occursnegotiation occurs•valuation report prepared
FIN 423IPO Cases, 1992-present
Some years, the negotiation pairings are assigned (bilateral monopoly)
Other years, teams are allowed to find any team on the other side of the case (competition)
FIN 423 Case 1 -- IPO Pricing Winter 2008
(c) Prof. G. William Schwert, 1998-2008 2
FIN 423IPO Cases, 1992-present
Lessons:• systematic bias in valuation results as a function of the incentives
• initial position (bid or ask) seems to be unrelated toinitial position (bid or ask) seems to be unrelated to final price
• competition seems to have a stabilizing effect on prices
• negotiation success is not always related to the quality of the reports
FIN 423 IPO Case Negotiations(Initial & Final Offers) 1992
Sybron - Bilateral Monopoly
$20
$25
$30
ybro
n
Initial Bid Initial Ask Final Ask Final Bid
Failed negotiation
$10
$15
IPO
Pri
ce o
f Sy
$0
$5
1 2 3 4 5 6 7 8 9 10Negotiation #
FIN 423 Case 1 -- IPO Pricing Winter 2008
(c) Prof. G. William Schwert, 1998-2008 3
FIN 423 IPO Case Negotiations(Initial & Final Offers) 1993
Allstate - Competition
$25
$30
$35
llsta
te
Initial Bid Initial Ask Final Ask Final Bid
$10
$15
$20
IPO
Pri
ce o
f Al
Evidence of Collusion???
$0
$5
1 2 3 4 5 6 7Negotiation #
FIN 423 IPO Case Negotiations(Initial & Final Offers) 1994NWA - Bilateral Monopoly
$20
$25
$30
NW
A
Initial Bid Initial Ask Final Ask Final Bid
$10
$15
IPO
Pri
ce o
f
$0
$5
1 2 3 4 5Negotiation #
Failed Negotiation
FIN 423 Case 1 -- IPO Pricing Winter 2008
(c) Prof. G. William Schwert, 1998-2008 4
FIN 423 IPO Case Negotiations(Initial & Final Offers) 1995
Geerlings & Wade - Competition
$10
$12
$14
$16
G&
W
Initial Bid Initial Ask Final Ask Final Bid
$4
$6
$8
$10
IPO
Pri
ce o
f G
$0
$2
1 2 3 4 5 6 7 8 9 10Negotiation #
Failed Negotiation
FIN 423 IPO Case Negotiations(Initial & Final Offers) 1996
Netscape - Bilateral Monopoly
$50
$60
$70
tsca
pe
Initial Bid Initial Ask Final Ask Final Bid
$20
$30
$40
IPO
Pri
ce o
f Net
$0
$10
1 2 3 4 5 6 7 8 9 10Negotiation #
FIN 423 Case 1 -- IPO Pricing Winter 2008
(c) Prof. G. William Schwert, 1998-2008 5
FIN 423 IPO Case Negotiations(Initial & Final Offers) 1997
Amazon - Competition
$20
$25
$30
maz
on
Initial Bid Initial Ask Final Ask Final Bid
$10
$15
IPO
Pri
ce o
f Am
$0
$5
1 2 3 4 5 6 7 8 9 10Negotiation #
FIN 423 IPO Case Negotiations(Initial & Final Offers) 1998
Charles River - Bilateral Monopoly
$20
$25
f CR
A
Initial Bid Initial Ask Final Ask Final Bid
$5
$10
$15
IPO
Pri
ce o
f
$0
$5
1 2 3 4 5 6 7 8 9Negotiation #
Failed Negotiation
FIN 423 Case 1 -- IPO Pricing Winter 2008
(c) Prof. G. William Schwert, 1998-2008 6
FIN 423 IPO Case Negotiations(Initial & Final Offers) 1999
Goldman Sachs - Competition
$50
$55
$60
of G
S
Initial Bid Initial Ask Final Ask Final Bid
$40
$45
IPO
Pri
ce
$30
$35
1 2 3 4 5 6 7 8 9 10Negotiation #
FIN 423 IPO Case Negotiations(Initial & Final Offers) 2000Tycom - Bilateral Monopoly
$40
$50
$60
Tyco
m
Initial Bid Initial Ask Final Ask Final Bid
$20
$30
IPO
Pri
ce o
f T
$0
$10
1 2 3 4 5 6Negotiation #
FIN 423 Case 1 -- IPO Pricing Winter 2008
(c) Prof. G. William Schwert, 1998-2008 7
FIN 423 IPO Case Negotiations(Initial & Final Offers) 2001
Instinet - Competition
$12.50
$13.00
$13.50
nstin
et
Initial Bid Initial Ask Final Ask Final Bid
$11.00
$11.50
$12.00
IPO
Pri
ce o
f In
$10.00
$10.50
1 2 3 4 5 6Negotiation #
FIN 423 IPO Case Negotiations(Initial & Final Offers) 2002
JetBlue - Bilateral Monopoly
$50
$60
$70
$80
etB
lue
Initial Bid Initial Ask Final Ask Final Bid
Failed Negotiations
$20
$30
$40
$50
IPO
Pri
ce o
f Je
$0
$10
1 2 3 4 5 6 7 8 9Negotiation #
FIN 423 Case 1 -- IPO Pricing Winter 2008
(c) Prof. G. William Schwert, 1998-2008 8
FIN 423 IPO Case Negotiations(Initial & Final Offers) 2003AXIS Capital - Competition
$2 50
$3.00
$3.50
$4.00
0,00
0)
Initial Bid Initial Ask Final Ask Final Bid
$1.00
$1.50
$2.00
$2.50
PO P
rice
of A
XIS
($00
0
$0.00
$0.50
1 2 3 4 5 6 7
IP
Negotiation #
FIN 423 IPO Case Negotiations(Initial & Final Offers) 2004
MarketAxess - Bilateral Monopoly
$6
$7
$8
$9
0,00
0)
Initial Bid Initial Ask Final Ask Final Bid
$2
$3
$4
$5
O P
rice
of M
KT
X ($
000
$0
$1
$2
1 2 3 4 5 6 7 8 9 10
IPO
Negotiation #
FIN 423 Case 1 -- IPO Pricing Winter 2008
(c) Prof. G. William Schwert, 1998-2008 9
FIN 423 IPO Case Negotiations(Initial & Final Offers) 2005New Skies - Competition
$800
$1,000
$1,200
0,00
0)
Initial Bid Initial Ask Final Ask Final Bid
$400
$600
Pric
e of
New
Skie
s($0
00
$0
$200
1 2 3 4 5 6 7
IPO
P
Negotiation #
FIN 423 IPO Case Negotiations(Initial & Final Offers) Spring 2006
Cowen - Bilateral Monopoly
$500
$600
$700
0,00
0)
Initial Bid Initial Ask Final Ask Final Bid
$200
$300
$400
O P
rice
of C
owen
($00
0
$0
$100
1 2 3 4 5 6 7 8
IPO
Negotiation #
FIN 423 Case 1 -- IPO Pricing Winter 2008
(c) Prof. G. William Schwert, 1998-2008 10
FIN 423 IPO Case Negotiations(Initial & Final Offers) Fall 2006
Carrols - Bilateral Monopoly
$2,500
$3,000
$3,500
0,00
0)
Initial Bid Initial Ask Final Ask Final Bid
$1,000
$1,500
$2,000
O P
rice
of C
arro
ls ($
000
$0
$500
1 2 3 4 5 6 7
IPO
Negotiation #
FIN 423 IPO Case Negotiations(Initial & Final Offers) Winter 2008
Digital Domain - Competition
$500
$600
$700
$800
0,00
0)
Initial Bid Initial Ask Final Ask Final Bid
$200
$300
$400
$500
of D
igita
l Dom
ain
($00
0
$0
$100
1 2 3 4 5 6 7
IPO
Pri
ce o
Negotiation #
FIN 423 Case 1 -- IPO Pricing Winter 2008
(c) Prof. G. William Schwert, 1998-2008 11
FIN 423 Case #1, Report Points(Max = 75, Avg = 55.6, Std= 11.5)
14
16
18
ents
4
6
8
10
12
Num
ber
of S
tude
0
2
4
35 40 45 50 55 60 65 70 75
Scores Less than or Equal to (but Greater than prior group)
FIN 423 Case #1, Negotiations
Bid1 BidL AskL Ask1 UP MP
$100.0 $160.0 $160.0 $200.0 21.5 18.5
$85.0 $90.0 $90.0 $95.0 25.0 15.0
$187.5 $291.7 $291.7 $351.5 15.0 25.0
$200.0 $230.0 $230.0 $390.0 18.1 21.9
$225.0 $250.0 $250.0 $275.0 17.1 22.9
$120.0 $165.0 $165.0 $200.0 21.3 18.7
$100.0 $164.5 $164.5 $738.0 21.3 18.7
$150.0 $150.0 $150.0 $350.0 18.0
FIN 423 Case 1 -- IPO Pricing Winter 2008
(c) Prof. G. William Schwert, 1998-2008 12
FIN 423 Case #1, Total Points(Max = 100, Avg = 75.8, Std = 12.6)
14
16
18
20
ents
6
8
10
12
14
Num
ber
of S
tude
0
2
4
50 55 60 65 70 75 80 85 90 95
Scores Less than or Equal to (but Greater than prior group)
Return to FIN 423 Home Page
http://schwert.ssb.rochester.edu/f423/f423main.htm