Jet Blue IPO Case Analysis
JetBlue Airways IPO Valuation
Summary
In July 1999, David Neeleman announced his plan to launch a new airline that would bring “humanity back to air travel.” Despite the fact the airline industry had 87 new-airline failures in U.S. over the past 20 years. Neeleman’s plan convinced a group of investors and quickly raised $130 million from venture-capital community. This is the way JetBlue Airways established. With its strong capital base, JetBlue acquired a fleet of new Airbus A320 aircraft and focused on low-cost, point-to-point service to large metropolitan areas with high average fares or highly traveled markets that were underserved. This strategy brought JetBlue Airways an excellent position in the beginning phase. JetBlue Airways started to expand aggressively and remained profitable even after the terrorist attacks of September 2001 by insisting on its low-fare strategy. In April 2002, barely two years since established, JetBlue meet its initial public offering (IPO). The initial price range for JetBlue shares was $22 to $24, but facing sizable excess demand, the management increased the range as $25 to $26. After the whole process of IPO including SEC review and comments, roadshow, pricing, tombstone advertisements, JetBlue finally launched in NASDAQ at $27/share as initial pricing, closed at $45/share on the first day of trading. With the proper strategy in IPO process, JetBlue make a huge success on its IPO.
Questions
Why JetBlue Airways can still remain profitable while most airline companies facing decline after 911 terrorist attacks?
JetBlue had made significant progress in establishing a strong brand image as a safe, reliable, low-fare airline that was highly focused on customer service and enjoyable flying experience. In addition, JetBlue’s target market that focusing on large metropolitan such as New York, Florida, Buffalo is very efficient and well positioned. What are the important factors in the final IPO valuation?
First, the professional opinions from the lead underwriter Morgan Stanley is every important to JetBlue’s successful IPO. Second, the company’s excellent performance and profit give investors great confidence to invest their money. Third, the level of interest in the IPO expressed by investors& financial analyst way better than similar airline IPOs. Fourth, JetBlue’s roadshow convinced a lot of investors to believe that the company has a bright future and great potential.
Why JetBlue accept $27/share as IPO price as they already know most IPO stock price will increase more than 25% percent? Why not $30? Or even more?
In management’s view, a successful offering entailed not only raising the short-term capital needs, but also maintaining access to future capital and providing positive returns to the crew members and others involved in directed IPO share purchases. In addition, as an underwriter, Morgan Stanley need to make the IPO price underpriced, so it can increase its own profit margin.
Recommendations
The company can still increase the initial price a little bit because its financial report and indicators are all excellent, so even increase the price to $30 per share would still be OK to attract enough investors. But $30 dollars would be the top limit cause in
most cases, the IPO price range is $10 to $20. The higher price would lead to smaller profit gap and also hurt the underwriter’s profit which the company still needs to cooperate with during secondary equity issue.
Lessons Learned
Narrow down your target market will be very helpful during business beginning phase. IPO pricing is an art, it’s not only about raising short-term money, but also long-term development.
Roadshow is very important, it will not only attract potential purchasers during IPO process, but also helpfully improve price performance in the aftermarket. Remaining Questions
What are the advantages and disadvantages of going public? What is the best price/shares range for IPO price? The higher the better or the lower the better?
Investment Banking: Appliance station
Summary
Appliance Station is a major producer of household appliances, including dishwashers, ranges, toilets, sinks, showers, washers, dryers and refrigerators. Most of each production run is manufactured for such national brands as GE and Maytag, although the company distributes its own line of appliances for selected discount stores under the brand “Royal Flush”. There are two major manufacturing plants—in Phoenix AZ and Roanoke V A. Over 60% of sales are to chains like Wal-Mart.
Appliance Station must now raise $75 million to modernize the two plants and expand the Phoenix facility in order to accommodate expected sales increases in Appliance Station’s business in the housing market in the Nevada and Arizona markets. There are three possible financing alternatives to raise the needed $75 million: 1) a stock issue, 4 million new common shares at a price of $20 per share. Appliance Station would net $75 million after $5 million cost. 2) a bond issue, ten-year debentures bearing an interest rate of 8%. 3) a combination of stock issue and a bond issue. Questions
What is the risk of issuing bond?
First, debentures means without any security, it’s paid back up on company’s earning. Appliance Station needs to get rating for its bond. If the rating is not good such as BB, then it’s not easy to sell the bond and the interest rate will be higher, so the company might not raise enough money. Second, Appliance station needs to pay interest for the bond. (AAA rating’s interest is the lowes t around 1%). If the company cannot pay the
interest on time, then it will go bankrupt.
What is the risk of issuing stock?
By issuing 4 million common stocks, the company’s stock price might be diluted. With the declining stock price, the public and customers will lose the confidence in Appliance Station. This could drive the company to other problems.
Compare the advantages and disadvantages of issuing bond or stock?
Bond issuing pros: the company’s debt/assets ratio is lower than industry average. The proper debt/assets ratio can reduce the cost of capital; cons: the company needs to pay taxes for selling bond.
Stock issuing pros: No tax for issuing stock, relatively lower cost than bond issuing, no bankrupt risk. Cons: the company needs to pay dividend, and may suffer dilution. Recommendations
The combination of stock issuing and bond issuing would be the best way to raise $75 million. By controlling the ratio of stock issuing and bond issuing, it could reduce all the negative influence and risks.
Lessons Learned
Raising capital need to consider all the internal and external influence. Properly using debt can reduce cost of capital. Taxes could cause huge difference while dealing with large amount of capital. Raising debt or assets will influence the compa ny’s financial indicators that will also influence the bond rating.
Remaining Questions
What is the best ratio of issuing stock and bond?
UHS walk-in clinic
Summary
University Health Services (UHS) is considered to be a health maintenance organization due to its prepaid services for 90% more potential users. The Walk-in Clinic provides most comprehensive ambulatory care for patients with acute medical and surgical problems on a basis of a policy of a first-come and first served.
As a chief administrator for ambulatory care at UHS, Angell aims to improve the quality of medical care by means of better coordination of services and implementation of new programs. Because of many complains derived from long waiting-time of pre-triage organization, the triage system was implemented near one year and its performance is about to be evaluated. (NP: Nurse Practitioners; MD: Medical Physician)
Pre-Triage system:
Questions
What are the advantages and disadvantages of pre-triage system?
Under the pre-triage system, the advantages are: 1) there is no triage process so that the time of waiting for triage and triage would be saved; 2) if patients need to see a physician, he will be re-arrange to order so that the time of evaluation by NP reduces. The disadvantages include three aspects: 1) the time of waiting for NP is longer; 2) although the time of NP examination reduces, the extra time of waiting for MD comes out; 3) 22% patients have to wait more than 35 minutes for nurses and 10 minutes will be wasted between a contact on nurse and doctor.
What's the reason lead to many complains under pre-triage system?
In one word, under pre-triage system, the overall problems include: 1) all of the patients are treated by all the nurses so that redundant treatment are given; 2) this system caused inconsistency and differentiation of treatment because of different skills and experiences from nurses or physicians; 3) the whole process of treatment led to inefficiency that took many patients to re-wait for MD after care from nurses. What are advantages and disadvantages about the triage system?
The advantages: 1) when triage process comes out, the time of waiting for NP is reduced; 2) if patients are arranged to see physicians, the waiting time and evaluation time by NP doesn’t exist; furthermore, although the waiting time for MD becomes longer, the total process time of treatment by physician is cut down.
The disadvantages: 1) the time of waiting for triage and triage appeared compared to old pre-triage system; 2) the waiting time for specific MD or NP is longer. Recommendations
In my opinion, solving existed issues, reducing waiting time and making the whole
system more efficient are key points. I have some suggestions as followings: first, expanding the guidelines with 13 categories for NP aims to promote the capacities of nurse practitioners and physicians; second, I realize that 67% students are the most portions of patients. Third, appointment system is capable of being improved. Lessons learned
The campus is the important source for the expansion of disaster. According to the experiences of nurse practitioners and physicians, they should sum up some complaints and treatment of common disaster. This is not only good for saving handling time to improve the efficiency, also decreasing the waiting time to reduce the complaints.
Remaining questions
If there is one person only responsible for the appointment system, and Angell makes a private rule for the upper limitation number of patients that day, are the demands of patients satisfied as usual? And could the decreased volume of appointment make the process smoother than before?
IPO图的画法
HIPO图绘制方法 在系统设计中，必须将数据流程图上的各个处理模块进一步分解，确定系统模块层次结构关系，从而将系统的逻辑模型转变为物理模型。进行模块层次功能分解的一个重要技术就是HIPO图方法。 任何功能模块都是由输入、处理、输出三个基本部分组成，HIPO图方法的模块层次功能分解正是以模块的这一特性以及模块分解的层次性为基础，将一个大的功能模块逐层分解，得到系统的模块层次结构，然后再进一步把每个模块分解为输入、处理和输出的具体执行模块。 HIPO图由三个基本图表组成，进行模块层次功能分解遵循以下步骤： 1、总体IPO图：它是数据流程图的初步分层细化结果，根据数据流程图，将最高层处理模块分解为输入、处理、输出三个功能模块。 2、HIPO图：根据总体IPO图，对顶层模块进行重复逐层分解，而得到的关于组成顶层模块的所有功能模块的层次结构关系图。 3、低层主要模块详细的IPO图：由于HIPO图仅仅表示了一个系统功能模块的层次分解关系，还没有充分说明各模块间的调用关系和模块间的数据流及信息流的传递关系。因此，对某些输送低层上的重要工作模块，还必须根据数据字典和HIPO图，绘制其详细的IPO图，用来描述模块的输入、处理和输出细节，以及与其他模块间的调用和被调用关系。 [next] 模块的层次功能分解 系统设计阶段首先要进行信息系统结构设计，就是采用结构化设计方法，从计算机实现的角度出发，设计人员对系统分析阶段划分的子系统进行校核，使其界面更加清楚明确，并在此基础上，根据数据流程图和数据字典，借助一套标准的设计准则和图表工具，将子系统进一步逐层分解，直至划分到大小适当、功能单一、具有一定独立性的模块为止，把一个复杂的系统转换成易于实现、易于维护的模块化结构系统。如图4-13所示。由此可见，合理进行模块分解和定义是系统设计的主要内容。 图4-13 模块化结构图的一般形式 模块是可以组合、分解和更换的单元，是组成系统、易于处理的基本单位。一个模块应具备以下四个要素： 1、输入和输出：输入来源和输出去向，在一般情况下是同一调用者。