Jetblue Airways Case

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FIN 475

JetBlue Airways Case

Spring, 2012

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 financing perspective, going public lowers a company's cost of capital . The main reason is that investors are willing to pay a higher price for a company's stock than if the shares had been privately issued, since they can easily sell the shares. This premium can reduce the cost of capital by several percent.

 New equity drastically lowers the proportion of debt to equity that is recorded on the corporate balance sheet, which is looked on with great favor by lenders. With the new equity in hand, a company can then ask lenders for a larger amount of debt, which they will be likely to lend until the amount handed over results in a significantly higher debt/equity ratio.

The Disadvantages of Going Public (Reasons not to go public)

One of the best reasons for not going public is its cost. A company conducting a small offering will find that the proportional cost of obtaining equity funding is extremely high, since the underwriter will charge a higher fee as a percentage of the amount raised in order to cover its cost and still earn a profit on the transaction.

 Loss of control is possible unless the owner has retained a large proportion of corporate stock or unless a separate class of super voting stock has been established that gives the owners additional votes at shareholder...