Initial Public Offering Paper Essay

The focus of this paper is to examine and research the pay issues that an organization moldiness face when going earthly concern. The team has selected Chipotle Mexi disregard Grill, Inc. as the organization which has had an sign public offering in the last deuce-ace years. The learning team allow address registration, disclosure, and compliance issues and cost of issuance. In addition, the team give examine the impact on ownership check and return as well as the source and application of strains. funding Issues that an Organization Faces When Going PublicAn sign Public Offering (IPO), is extremely expensive for organizations. It is car rack upk for a small business to pay amid $50,000 and $250,000 to organize and publicize an offering. According to Paul G. Joubert, author of The Portable MBA in Finance and Accounting, IPO claims between 15 and 20 percent of the talk of the sale of line of reasoning (IPO Forum, 2008). Some other costs associated with going public inclu de lead underwriters commission, expenses for legal and accounting services, printing process costs and filing costs with the Securities and Exchange Commission ( second gear). Organizations may put angiotensin-converting enzyme over ongoing expenses for legal, accounting and filing services (IPO Forum, 2008).Issues alludeing Divid curiosity Policies and Constraints on Dividend PaymentsA devoted must examine all financing and investment issues before ascertain the proper payout of dividends for their organization. Some organizations opt to pay out little exchange dividends to reserve earnings for future expansion. It is ideal for an organization to start with smaller payouts, and act up with conservative dividends per sh atomic number 18. This payout decision is a result of the organizations capital budgeting decision.A nonher option for payout of dividends is to finance a large ploughshare of their capital expenditures. This will free up cash that the organization can pay out to shareowners. This payout decision is a result of the decision to absorb for the organizations growth (Brealey, Myers, and Marcus, 2007).ChipotleChipotle Mexican Grill, INC. is a fast-casual restaurant. It offers customers the quality aliment they would receive in a restaurant with fast-food style quickness. The graduation col was in 1993 by the founder and CEO Steve Ells. They serve very few things but claim to provide thousands of options. Their base choices are burritos, burrito bowls, tacos, and salads. Chipotles nuance is Food With Integrity which involves using unprocessed, seasonal, family-farmed,.naturally made, added hormone free, organic, and artisanal, in the words of Chipotle.com. Chipotle claims on that point products to better, all the way from dairy to meat. They only purchase from farms in which the animals are treated humanely and naturally raised. This philosophy has allowed Chipotle to grow from one fixture in 1993 to 670 in 2007 as well as com pete in the fastest growing industry in restaurants (Chipotle, 2008).Registration, Disclosure and Compliance IssuesChipotle filed a form S-1/A with the United States Securities and Exchange Commission on celestial latitude 23, 2003. Two securities were registered under the filing as follows Class A common deport, par value $0.01 per share, offered by the registrant and Class A common stock, par value $0.01 per share, offered by the foodstuffing shareholder.( Form S-1/A ,2005) Common stock offered by the registrant is at a Proposed Maximum compound Offering toll of $1 gazillion dollars and a registration remuneration of $11,770. The Proposed Maximum Aggregate Offering Price of the common stock offered by the selling shareholder is $49.5 million (over allotment selling to the underwriters, if any, factored in to total) with a registration fee of $5,296.50. A total of 78,78,788 shares is included in the IPO and broken level by 60,60,606 from Chipotle Mexican Grill, INC and 18,1 8,182 from McDonalds Ventures, LLC as the selling shareholder. Chipotle intends to list their common stock on the New York Stock Exchange under the symbol CMG and selling price is between $15.50 and $17.50 per share. (Form S-1/A ,2005)Disclosure is the release of relevant information. (Disclosure ,2008) In Chipotles SEC filing they disclosed the prospectus statement, fiscal data, and future plans. by dint of there prospectus statement Chipotle makes it clear that they are set unconnected from other chains by serving Food with Integrity.However, there are risks involved in investing, they are as follows the number of saucily stores rapidly being established, lack of independent operating history, ability to continue to grow and profit, and health and safety concerns regarding the ingredients used among others. Although the risk factors are in place, Chipotles financial data provides more assurance of returned profit on investment. In their Rapidly Improving Financial Performan ce section of the SEC filing they state a 130% increase in taxation in 2004 of 470.7 million up from 2002 and 49% up from 2003.And, average gross sales in new restaurants after 90 trading days change magnitude 24.9% a total of $303,390. From 2002-2004 Chipotle capable a total of 237 stores. Their increased financial growth is attributed to word-of-mouth sales and quicker implementation of Chipotle culture in the area of the new restaurant. Also, more people are aware of Chipotle, hence increasing average enterprisingness sales.( Form S-1/A ,2005)The future plans of Chipotle is to broaden operations and sales by opening new stores. They forecast opening a total of 75 stores in 2005 of which 58 were already opened at the time of the SEC filing. In order to expand sales they plan to implement an online method of ordering and increasing fax lines to settle heavier traffic without causing service to suffer. And, create new food options with existing ingredients. Through filing the SEC Chipotle is in compliance with the securities act of 1933 by means of rule 457 by following registration fee rules. (Compliance, 2008)Cost of upshotA company filing an IPO must select underwriters in order to issue their stock. The underwriters purchase the stock and sell it at a slightly higher price than what they bought it for. They are responsible for all shares allotted, not including over allotment, and are not reimbursed for shares not sold at initial offer price. Chipotles underwriters areMorgan Stanley & adenine Co. IncorporatedSG Cowen & Co., LLCBanc of America Securities LLCCitigroup Global Markets Inc.J.P. Morgan Securities Inc.Merrill Lynch, Pierce, Fenner & SmithIncorporatedA.G. Edwards & Sons, Inc.RBC Capital Markets CorporationSunTrust Capital Markets, Inc.Wachovia Capital Markets, LLC(Form S-1/A ,2005)Chipotle Mexican Grill, INC. did not disclose the cost of issuance in the SEC filing.Impact on Ownership Control and ReturnChipotle had filed their IPO October 25th, 2005. Seeking $121.4 Million, Morgan Stanley and SG Cowen & Co., LLC they auctioned their shares. explain some of the details behind its highly anticipated stock offering, Chipotle estimated its market value to be as high as $121. 4 Million, Chipotle will remain majority owned by McDonalds Corp. (Chipotle.com, 2008).On its first day as a public company, Chipotle stock rose incisively 100%, closing at $44.00 per share. On September 8, 2006 McDonalds Corp. announce it had started an offer for its shareholders to exchange McDonalds stock for shares of Chipotle Mexican Grill. The exchange allowed McDonalds shareholders to acquire Chipotle shares at a 10 percent discount. The offer is crest at a level of 0.9157 Chipotle shares for each McDonalds share change owned by McDonalds Corporation. On October 13, 2006, McDonalds Corp. completed a tax-free swap of class B common stock in Chipotle Mexican Grill, Inc. (NYSECMG), for its own common stock. McDonalds Corp. has now fully divested its investment in Chipotle.Source and Application of FundsWhen it comes to an IPO, the initial funds come from an investment banking dissolute referred to as an underwriter. The underwriter provides the financial advice to the company, buys the stock from the company, and then resells it to the public. Depending on the size of the IPO and number of stocks being offered, the company may have one underwriter or multiple underwriters. Before the stocks can be sold, they must be registered with the U.S. Securities and Exchange Commission (SEC). The primary responsibilities of the SEC are to impose federal securities laws and to regulate stocks and the stock market. The company must also watch whether to trade the stocks on either the New York Stock Exchange or NASDAQ. This would be the secondary and future source of funds.When Chipotle decided to go public, they had 2 underwriting companies as their primary underwriters Morgan Stanley and SG Cowen & Co. LLC. Chipotle originally planned to sell 6.3 million shares at $15.50 to $17.50 per share but ended up changing at the last minute to 6.3 million shares at $22 per share. In the end the offering raised approximately $133M in primary capitalto fund new store growth.In conclusion, organizations must let in into consideration many financial issues and decisions when going public. Many of these financial issues will be ongoing, and have to be taken into consideration when determining dividend payout to shareholders.Reference(s)Brealey, R., Myers, S., and Marcus, A. (2007). basics of corporate finance. (5th ed.). University of Phoenix Custom Edition e-text New York, NY McGraw-Hill/Irwin. Retrieved February 9, 2008 from University of Phoenix, rEsource, FIN325-Financial Analysis for Managers II Web site.Chipotle (2008) Chipotle.com Investor Relations. Retrieved on February 10, 2007 from,http//phx.corporate-ir.net/phoenix.zhtml?c=194775&p=irol-homeProfile&t=&id=&Compliance (2008) Co mpliance Definitions. Retrieved on February 10, 2008 from, http//www.investorwords.com/5468/compliance.htmlDisclosure (2008) Disclosure definition. Retrieved on February 11, 2008 from,http//www.investorwords.com/1469/disclosure.htmlForm S-1/A (2005) Chipotle Mexican Grill. INC SEC Filing. Retrieved on February 10,2007 from, http//phx.corporate-ir.net/phoenix.zhtml?c=194775&p=irol-sec&secCat01.1_rs=241&secCat01.1_rc=10Initial Public Offering Forum. (n.d.). Initial public offering. Retrieved February 11, 2008 from http//www.referenceforbusiness.com/small/Inc-Mail/Initial-Public-Offerings.html