4. Initial Public Offering (25 points) a) You are the adviser of an investment bank. Your Investment bank works as the underwriter for the IPO - with "firm commitment offering for the company Best Pet Food". This company developed over the last 8 years very successful in the market, in particular due to very Innovative online shopping tools, and is now closely before going public on the NASDAQ. Current shareholders are 2 founders (each 25%) and a Venture Capital (VC) firm (50%). While the 2 founders want to remain shareholders after the IPO, the VC firm wants sell their shares during the IPO. It is also planned to raise new shares apart from selling shares of VC firm in order to generate new cash for the company financing future growth. During a roadshow which finished last week, you had the impression that there is a high interest from some larger investment funds and also the general public, mainly in the price range of USD 55-65 per share. Next week you will meet the management of "Best Pet Food". Please discuss your potential strategy in terms of the right price for the offer price in that meeting, considering the following aspects (13 points): What interest does the VC firm have and do the founders have the same interest ? Is it generally the best approach to maximize the initial offer price ? What about the Winner's Curse in this respect ? What interest do you have, representing the underwriter/investment bank, short-term and medium-term ? I b) IPO-yes or no 2 Please discuss briefly the advantages and disadvantages for a company to go public (at least 3 advantages and 3 disadvantages). (12 points)