Rosetta Stone: Pricing the 2009 IPO Harvard Case Solution & Analysis

Rosetta Stone: Pricing the 2009 IPO

An initial public offering (IPO) is the first time sale of the stock of the company. Companies that look further to grow the company often use an IPO as a way to generate the capital to expand the company. Even though the expansion is a beneficial for the company, however there are both advantages and disadvantages that arise when the company goes public.

Advantages:

A company by going public can access capital in lieu of debt though selling its shares. In private financing like Venture Capital or Angel Investment, often the investor wants some degree of control on the business. Going public also improves the debt to equity ratio of the company, which often helps the company in more favorable financing arrangements.

The company can utilize its equity through going public as it can offer its stock as an incentive, bonus or as a part of the employment contract. It can beneficial for the company as it can retain its key people. Equity can also be used to acquire other businesses. The shares of the company can also be used or turned into cash for paying debs or acquiring another business.
The performance of the company has an effect on its stocks. If the company performs well, then the stock of the company would increase, which would also increase the value of the company.

Disadvantages:

Going public is a costly step for the company as it is not familiar with the process and it requires help, which means that the company will need to incur legal, accounting, underwriting and printing costs to create the offerings. It is highly recommended for the companies to seek the help of qualified and experienced professionals who help the company through the whole process of taking the company public.

Going public also increases the filing and reporting requirements for the company. The companies in the U.S. require full disclosure according to the Sarbanes-Oxley Act so that the investors can make informed decisions. This indicates that the company would have to increase the reporting and disclosures formalities.

The stock prices of the company can be manipulated by the unethical trading activities and practices. In the stock there are people who can manipulate the share prices of the companies without even purchasing the stocks of the company.

It is a good idea for the company to go public as the demand of its shares is strong. The market has rallied 20% in the recent weeks. The competitors of the company are also going public....................

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