Module: Corporate Finance Pleas answer the following. Question 1. Under Armour made its mark Friday as the first U.S.-based initial public offering in five years to rise at least 100% during its first day of trading. The Baltimore-based maker of synthetic T-shirts that wick perspiration away from the skin worked Wall Street into a sweat in its stock market debut, with shares opening at $31, more than double its $13 offer price […]. The shares closed [at the end of the first day] at $25.01. The performance marks the best opening day gain by a U.S.-based IPO since Transmeta, debuted in November 2000, according to Thomson Financial. […] Under Amour raised $157 million in the IPO, offering 12.1 million shares via an underwriting group led by Goldman Sachs [who earned 7% underwriting fees]. The company sold 9.5 million shares in the deal, with the remaining 2.6 million shares being sold by stockholders. Renaissance Capital, which runs a fund for IPOs, lauded Under Armour’s “well-known brand and strong prospects for growth in the athletic- and consumer-apparel markets”. Under Armour’s IPO doubles, MarketWatch 18/11/2005 by Steve Gelsi a) Explain in detail the gains/losses and the associated risks/benefits from the above IPO pricing structure for the main parties to the Under Armour IPO offering: the investment banks, the institutional shareholders subscribing to the offer, and Under Armour’s existing shareholders/founders. Support your answer with necessary calculations. b) Discuss the theories and the empirical evidence on why the IPO offer price is usually lower than the first trading day closing price.
