Transcript Law for Business

Stock Market Analysis and
Personal Finance
Mr. Bernstein
The Ferrari IPO
October, 2015
Stock Market Analysis
& Personal Finance
Mr. Bernstein
What is an IPO?
• IPO = Initial Public Offering
• Some companies do not want their shares to
trade freely in an open market. Their stock is
known as Private Equity.
• When the owners of a private company wish to
sell shares to the public for the first time, it is
known as an IPO.
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Widely known private companies
• Startups (Facebook, Twitter, Alibaba)
• Family Businesses (M&M Mars)
• Divisions of larger companies (Heinz, Fruit of the
Loom, Dairy Queen)
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Why do companies go public?
• Can raise funds faster and more easily than in
private market
• Convert holdings into cash
to be deployed elsewhere
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Why is Ferrari Going Public?
• Currently 80% owned by Fiat Chrysler and 10%
owned by the Ferrari family
• Wants to fund a 5-year
expansion plan
• Looking to become
a luxury brand,
not just a car manufacturer
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Ferrari IPO Basics
• Selling ~17mm shares at a price range of $48-$52
• Likely timing is next Monday
• Ticker will be RACE
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
The IPO Process
• Ferrari works with one or more Investment
Bankers
• Investment Banks
– Work with investors and corporations
– May arrange “road show” to formally allow Ferrari to
tell their story to potential investors
– Help both Ferrari and potential investors set a fair
price
– May guarantee a price to Ferrari
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
The IPO Process
• Can investors use Technical Analysis?
• Here is a chart of Ferrari’s recent price:
• It hasn’t traded yet!!
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
The IPO Process
• Can investors use Fundamental Analysis?
• Ferrari management will provide potential
investors their estimates of future earnings
• They will also provide their business strategies
• Investors can assign a P/E ratio to the earnings
estimates to determine a fair price
• The IPO price is, in general, at a modest discount
to consensus fair value to insure a smooth sale
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
The IPO Process
• Investment Banks and Ferrari both want the
stock to rise following the IPO to insure investors
will come back next time they want to raise funds
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