JetBlue Airways Case
JetBlue's Number of Outstanding Shares Before IPO - 40,578,829
Common Stock Offered - 5,500,000 shares are to be sold
Total Number of Outstanding Shares After IPO - 46,078,829
JetBlue's Diluted Earnings Per Common Share = $1.14
1. What are the advantages and disadvantages to a firm from going public? List at least three of each.
The Advantages of Going Public (Reasons to go public):
From an operation perspective, going public gives a company a large pot of cash, which it can use to increase its competitiveness by increasing its asset base, improving marketing, hiring qualified staff, funding more product research, and so on.
From a ...view middle of the document...
Otherwise, outside investors can either buy up shares to create large voting blocks or band together to create the same result.
Information disclosure is yet another problem. In addition to the expense of having additional accounting staff to organize and report this information, there is the problem of disclosing information to a company's competitors, who only need to go to the SEC's web site to access all required reports filed by the company.
Another issue is the constant pressure from investors and analysts to show improved results
every quarter. Investors can attempt to unseat the management team by approving a different Board of Directors if they feel that growth rates are below their expectations.
The management team must understand that it now exists not to serve themselves, but to serve the investing public. This major shift in focus calls for the elimination of unusually high compensation packages to the managers, as well as a commitment to increasing shareholder value over other objectives that may have been in vogue at the company prior to going public.
2. What are JetBlue's five implied market prices based upon the P/E multiples of the five comparable airlines listed in Exhibit 7? (Use JetBlue's diluted EPS value from Exhibit 3 for the year 2001.)
JetBlue's Diluted Earnings Per Common Share = $1.14 (Given)
TABLE 1 | | | | JetBlue's Implied Market Price |
| Price/Share | EPS | PE Multiple = (Price/Share) / EPS | P/E x 1.14 |
AirTran | $35.74 | $1.06 | 33.72 | $38.44 |
Alaska Air | 44.98 | 1.17 | 38.44 | 43.83 |
America West | 21.45 | 0.68 | 31.54 | 35.96 |
Midwest | 9.02 | -0.88 | -10.25 | N/A |
Southwest | $18.28 | $0.98 | 18.65 | $21.26 |
3. What are JetBlue's five implied market prices based upon the CF (cash flow) multiples listed in Exhibit 7 for the five comparable airlines? Use the 2001 cash flow from Exhibit 3 (CF = net income + depreciation), and the number of outstanding shares immediately after the IPO, as given in Exhibit 1 and in class.
JetBlue's Total Cash Flow = Net Income + Depreciation + Amortization = $31,984,000 |
JetBlue's CF/share = Total CF/Number of Common Shares=31,984,000/46,078,829=0.69 |
TABLE 2 | | | | JetBlue's Implied Market Price |
| Price/Share | CF/Share | CF Multiple = (Price/Share)/(CF/Share) | CF Multiple x 0.69 |
AirTran | $35.74 | $1.46 | 24.48 | $16.89 |
Alaska Air | 44.98 | 1.64 | 27.43 | 18.92 |
America West | 21.45 | 0.72 | 29.79 | 20.56 |
Midwest | 9.02 | -0.56 | -16.11 | N/A |
Southwest | $18.28 | $0.84 | 21.76 | $15.02 |
4. What are JetBlue's five implied market prices based upon the TA (total assets) multiples? Use the total-assets figure from JetBlue's...