Reference no: EM132958001

Case: Facebook, Inc.: The IPO

• The case allows us to explore the mechanics of IPOs via one of the most anticipated issuances in recent history
• It highlights the difficulties of valuing young, fast-growing companies (e.g., with few clear comparables)
• It allows us to discuss the incentives of various stakeholders around "value": founder, management, corporate insiders, underwriters, and market investors
• Gives unique insights into the IPO underwriting business
• Quick references:
- A literature review article can be found here, recent trends here
- Video of why companies go public can be found here

• Put yourself in the shoes of Jonathan McNeil; lead analyst at CXTechnology Fund
- You need to decide whether to participate in this IPO
• First, consider Facebook prior to its May 2012 IPO. What is the company's business model?
- How does Facebook make money?
- How does it compare with other social network companies?
• Why is Facebook going public? Why now? What is the planned use of proceeds from the IPO? Is it all "justifiable"?
• Consider the broad context in which this IPO is to happen
- What is going on in the US IPO markets around this offering?
- What has been the performance of recent tech-IPOs?
• An excel spreadsheet is provided to help you with the case

• Next, turn to the issue of valuation
- What was the "intrinsic value" of a Facebook share at its IPO?
- How does your valuation compare to that of the underwriter?
- Hint: From provided excel file, use Ex. #11 for DCF and Ex. #12 for multiples-based valuations
• Finally, it is time for you to make a recommendation
- As a potential new shareholder, what are your concerns about Facebook (as a company) and its stock offering?
- What is your recommendation for CXTechnology? Buy in? Pass?
• The rationale and details of your response shall be given in a professional memo (6-10 pages, 1.5-line spaced, font 11)

Case: Bed Bath Beyond

• This case allows us to consider the problem of excess cash faced by many companies these days
• Cash balances are on the rise: Large U.S. firms hold $3 Tri in cash today, 5× the amount held 10 years earlier
• Investors often see this as "inefficient balance sheets" and demand stock repurchases
• CFOs must decide what to do with excess cash and modulate firms' capital structure
• The case allows us to consider factors that are important when setting capital structure: Tax shields, costs of financial distress, credit ratings, etc.
• A review of cash holdings at the S&P 500 firms
• Put yourself in the shoes of BBBY's CEO, Steven Temares
• It's April 2004 and you're about to decide what to do with the $400 million "excess cash" in the firm:
1. Keep it?
2. Pay it out? How?
3. Issue debt?
4. All of the above?
• In doing so, you must think about what market imperfections
make this decision meaningful
• What factors should you consider when choosing the "optimal capital structure"?
• Note BBBY's non-cancellable leases (tax-deductible pmts)
- They look and behave a lot like "secured debt" claims
• An excel spreadsheet is provided to help you with the case

• Consider a concrete program...BBBY combines:
1. Use $400 million excess cash, and
2. Borrow funds (at 4.5%)
to conduct a share repurchase
• Under the above program, compute the PV of tax shields and estimate the bond ratings for the following D/E ratios: 20%, 40%, 60%, and 80%
- The corporate tax faced by BBBY is 38.5%
• The rationale and details of your response must be given in a professional memorandum prepared individually
• This is to be as complete and thorough as you can be in recommending a specific policy!
• The rationale and details of your response shall be given in a professional memo (6-10 pages, 1.5-line spaced, font 11)

Attachment:- Practice Case Studies.rar