Jetblue Ipo Case Essay

1008 Words Feb 5th, 2011 5 Pages
Business Finance Policy: FINA 380-01

Dr. William Brent

February 3rd 2009

JetBlue Airways: IPO Valuation

Table of Content

I. Statement of Problem

II. Alternative Solutions

III. Analysis of the Alternatives

IV. Final Recommendation

V. Appendix

I. STATEMENT OF THE PROBLEM David Neeleman, CEO of JetBlue Airways and his management team have realized that JetBlue is still making profit despite the many challenges facing the airline industry after the September 11th 2001 terrorist attacks. Despite these positive returns; JetBlue plans on raising capital through an Initial Public Offering (IPO) to support its aggressive growth and to also offset portfolio losses to their venture capital
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Pricing the issue below or above the current IPO price range JetBlue also has an option pricing the IPO above or below the current range determined by its underwriters. Firstly, if JetBlue decides to sell the stock at an undervalued price it will generate major interests from the public, since it is considered cheap. There will be a flooding of investors to buy JetBlue stock at its relatively low price, and based on previous IPO EBIT multiples, investors will be getting good value for their money, since an anticipated increase in stock price of over 50% is imminent. On the flip side, JetBlue Airways, may be leaving too much money on the table if it utilizes this under pricing strategy, there is also a probability of share dilution, which may lead to an overall decrease in the value of common stock soon after its IPO. As a result of this major disadvantage, I will not recommend JetBlue to price the IPO below the current range. Alternatively, JetBlue can price the IPO above the current range. Let’s say at $27.00. A major positive result is that money is not being left on the table. Also, it shows how management value its firm based on its assets, employees, technologies and other competitive advantages. This sends a strong signal to investors. However, if investors perceive this price to be too high it may defeat the purpose of the IPO, since market equilibrium for JetBlue shares may not be reached at this price. Nevertheless,

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