ROSETTA STONE: PRICING THE 2009 IPO Case Study Analysis
Recommended Price Range from Morgan Stanley’s Perspective
Morgan Stanley will price the deal from the range of $8.6-$14.19, as the investment firm will receive an investment income of $200-$326 million in case of pricing the deal at the above-specified range. Moreover, the suggested price range appears to be realistic and justified as the share price of $8.6 is calculated using market multiples, which reflect the actual market transactions. Moreover, the share price of $14.19 is estimated using WACC therefore, it reflects a realistic value of the firm’s shares.
Moreover, Rosetta Stone has a strong brand reputation, huge geographical outreach and growth prospects, various investors will be attracted by the strong financial position of the company and returns. This indicates that the chances of IPO success appear to be high which will benefit the investment firm in terms of increased demand and credibility, as other businesses will also approach Morgan Stanley for the provision of financial and investment firms. The above-specified price range reflectsthe real and true value of the company’s shares and investors’ will likely purchase the business’s shares at the mentioned price range.
Recommended Price Range from Rosetta stone’s Perspective
The management will price the shares for IPO at a value of $8.64 as it prevents the company from the risk of underpricing or overpricing of shares as WACC is used in price estimation which indicates the realistic and fair price of the shares. Moreover, since it is the first IPO of Rosetta, offering the shares at a low value will enable the business to attract more investors and increase its investor base. In addition, pricing the shares at $8.64 will ensure the IPO becomes successful as since the equity and financial markets in the region are already facing adownturn due to economic problems, the investors will not be willing to purchase the business’s shares if their price is very high.
In addition, the business will be advised to offer the shares subsequently at a price of $14.16 estimated using market multiples approach, since the business is profitable and has a huge growth prospect, an adequate and attractive return will be provided to shareholders as a result of an increased growth. This process of issuing shares subsequent to the company’s IPO is called Secondary offering. This process will allow the business to raise capital form a wide range of investors and venture capitalists which will aid the firm in funding growth strategies and will improve the liquidity of the firm further.
Recommended Purchase Price to Mr. Ferguson
It will be advised to Mr. Ferguson to hold its shares in Rosetta Inc.,as the CEO of the company plans to expand the business internationally and entertain mergers and acquisitions through the added financial resources raised through IPO. Therefore, these plans indicate that the business’s growth and ultimately its share price is likely to increase in the future. Holding the shares and selling them in the future will provide significant capital gain and benefit to Mr. Ferguson. For instance, if Mr. Ferguson decides to sell the shares now, it will provide him a benefit of $8.26 per share, which is the current pricing for IPO. On the other hand, if it decides to sell the shares in the future, the investor will get an additional benefit of $0.20 per share based on the assumption that share price will increase by 2.5% in a year.........................
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