Prada’s Hong Kong Ipo Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Prada’s Hong Kong Ipo Case Study Solution

Introduction

In the year 1993, Mario Prada opened its store in Milan for the purpose of selling goods that were made with leather and other luxurious materials. These goods have become very popular in the European elite families. After the death of the Mario Prada, his daughter, named Luisa proceeded her father’s legacy ahead. In the year 1978, Lucia’s daughter Miuccia took over the charge of her family business with the help of her abilities, such as: the left wing, activist and mime personality and but she soon started struggling with her family business.(Gromb, 2014).

Miuccia’s husband Patrizio Bertelli, who is a leather goods entrepreneur, had changed the Prada’s market position for its survival by changing the Prada’s identity and structure according to the industry as well as the strategy of operating the business. In order to raise money, Prada was considering for an IPO (initial public offering). For this purpose, in the year 2011; Prada revised the data to offer an IPO. At the end of the June 2011, the presentations were done to enlist the company in the Hong Kong Stock Exchange.

Strategic Milestone for a Company (Question 1)

The changes were significant as growth was generally driven by the developed markets, particularly the United States. Prada needed to support the global investment portfolio of the big luxury brands that had led to the listing. Following a series of acquisitions, in order to fulfill its commitment to become one of the world’s leading brands; Prada had committed to expanding its global influence by opening and operating its own stores around the world.
The Hong Kong stock market was given an important listing position, ranking first in the IPO results in the year 2009 as well as in the year 2010, and now it is starting to attract the international issuers. The main attraction is the company’s expected premium of 10 to 15 percent as compared to other markets. Analysts believe this is because the local investors “understand” what China means to a company. Prada has attracted a large share of foreign investment opportunities to the country, with:

A good financial result.
A clear and growing footprint in China.
And, a history of growth backed by a sound business plan.

Recognizing that the listing of Prada shares would be a trans-formative event for the company, Prada executives carefully considered whether and when to go public. An IPO is a means of raising capital for the company through the initial issue of new shares in Prada SpA. About 75 percent of the profits (estimated at around 230 million Euros) are spent on the development and improvement. In the DOS network, 15 percent of the revenue is used to pay off part of Prada SpA's debt and 10 percent of the revenue is used for working capital requirements and general business needs.
Another method is for owners to earn money from their shares through a secondary issue. In this secondary issue, the existing shares of Prada SpA are sold to others,instead of the company. The sale price is expected to exceed 1.5 billion sterling pounds (UK Pounds). Intesa Sanpaolo will leave almost entirely, and Prada Holding BY will use part of the proceeds to pay off its debts.

Over-allotment (Green Shoe) Option (Question 2)

Over-allotment options (sometimes called green shoe options) are the options that allow the subscribers to sell multiple shares during an initial public offering (IPO). Subscribers can sell 15 percent-additional shares to the investors than they originally agree to allot in the stock exchange market, but there is a limitation that the option must be exercised within 30 days of issuance otherwise it will not be accessible. The specific details of the rights issue are contained in the IPO subscription agreement between the company that is going to issue the shares and the subscriber. The subscriber (usually an investment bank or broker) may exercise the rights issue.

As it is known that the trading on the Hong Kong Stock Exchange will begin in a week;among other services, subscribers gain market share in order to stabilize the prices. The green shoe option (additional package on the right) allows them to increase their total emissions by up to 15 percent. Additional shares sale will come from Prada Holding BY.

Underwriting Investment Bank(Question 3)

Hire an investment bank before starting the IPO. The bank is selected on the basis of several criteria, such as: market reputation, experience in the sector, quality of research distribution channels and so on.
Select the underwriting bank as a broker between the investor and the issuing company.
The investment bank specifies the financial details of the IPO in the subscription agreement.
Issue a corporate document registration statement and subscription agreement with the SEC.
The SEC notary and the post-IPO approval of the issuing company will determine the offer price and the number of shares to be sold.
After issuance, the bank ensures the stability of the secondary market. The bank analyzes the stability of the secondary market and creates a stock market.
The last step is to move to market competition. After 25 days, the bank will provide estimates of the issuer’s valuation and results.
The investment bank assists the company in all configurations and listing. One of the main activities of investment banking is the IPO. In return of this, the bank charges a commission to the company.

After-sales activities are those activities that affect the prices as well as the issuers and investors both. We discuss and analyze the following three forms of experiential after-sales activities:

If the allotment of shares is incomplete; the subscriber shall make a stable offer to purchase the shares at a price not exceeding the offer price. Assuming that the demand curve has a negative slope, the extent to which further stock sales will delay price declines. This direct intervention is called “pure” stabilization.
The first sale of the subscriber's shares exceeded the initial amount issued and therefore maintained a short position prior to the issue. This short position can be covered by exercising the unnecessary allotment options and / or taking short positions in the secondary market. Almost all the IPOs have additional item options. Insurers may sell additional shares, not exceeding 15 percent of the issue scale, which may be exercised within 30 calendar days of the issue. On issues that are expected to be low, underwriters typically sell the positions, allocating 115 percent of the specified issue size. This form of price support is called an ex-post hedging transaction.............
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