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Why go public?<br />
(d) Cost and distraction of management<br />
time and attention<br />
Going public is a relatively expensive<br />
process, incurring one-off and ongoing<br />
costs for legal counsel, accounting<br />
and auditing services, D&O insurance,<br />
underwriting fees, printing, as well as for<br />
additional personnel to handle expanded<br />
reporting, compliance, and investor<br />
relations activities. Furthermore, planning<br />
and executing an IPO is a time-consuming<br />
process that can distract management<br />
from the company’s core business.<br />
Ongoing public company obligations<br />
post-IPO should also be expected to take<br />
up significant management time.<br />
1.3 Going public without an offering<br />
J.P. Morgan (Investment Banking)<br />
It is possible to go public without<br />
conducting a simultaneous offering,<br />
although this is typically not recommended<br />
except in specific factual circumstances.<br />
If the company does not conduct a<br />
simultaneous offering, its existing shares<br />
are listed on the exchange without being<br />
placed in the hands of new investors.<br />
Two examples of going public without an<br />
offering are (a) spin-offs of existing groups<br />
or divisions of already public companies<br />
and (b) foreign issuers listing American<br />
depositary receipts (ADRs) in the United<br />
States.<br />
(a) Spin-offs<br />
A spin-off from an existing company occurs<br />
when a public listed company spins off a<br />
part of its business into a separate public<br />
entity listed on an exchange. Typically, that<br />
part can function as a separate, stand-alone<br />
business, with characteristics distinct from<br />
those of the parent company. In such a<br />
transaction, each existing investor in the<br />
parent company will receive shares in the<br />
spin-off entity pro rata to its ownership in<br />
the parent. For example, Investor A, which<br />
owns 5% of Parent Company A, will receive<br />
5% of the shares outstanding in SpinCo A.<br />
In this transaction, liquidity is generally<br />
preserved for the SpinCo, but the investor<br />
churn may be considerable. For example,<br />
Investor A may own Parent Company A for<br />
its other businesses, which still reside in<br />
Parent Company A, and have no interest<br />
in SpinCo A and quickly dispose of the<br />
shares it receives. To this end, it is difficult<br />
to control the investor base in a spin-off<br />
transaction, whereas during an offering<br />
process shares are strategically placed with<br />
those investors known to be interested in<br />
owning them.<br />
(b) Foreign issuers listing ADRs<br />
A foreign company that is publicly traded<br />
on an international exchange outside the<br />
United States can list ADRs on the NYSE<br />
without conducting an offering. The stock<br />
is tied to the underlying international<br />
security and traditionally trades in tandem<br />
with that security. While the ADR will<br />
give the company incremental exposure to<br />
U.S. investors, there are often limitations<br />
on certain funds holding ADRs similar to<br />
those limitations applying to the holding<br />
of international investments, and typically<br />
the liquidity and trading of ADRs can<br />
suffer when compared to direct listings of<br />
the underlying stock.<br />
Through a U.S. listing, foreign private<br />
issuers (FPIs) can significantly improve<br />
their access to the U.S. equity market.<br />
During the last decade, demand for foreign<br />
equities has grown appreciably among U.S.<br />
institutional and individual investors alike.<br />
This demand has been driven by a need<br />
for enhanced portfolio diversification,<br />
which holdings of foreign equities can<br />
provide, and a desire to tap into the higher<br />
economic growth rates found in many<br />
countries outside the United States—<br />
emerging markets in particular. ●<br />
NYSE IPO Guide<br />
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