FIN 501 Case 1

Early last summer, Avaya made the announcement that it would file for an IPO in the near future. While there is a lot of preparation and consideration that goes into this process, an emerging decision that corporations must also make is whether to use a traditional or online auction IPO. There are pros and cons to each type of IPO and each method may or may not be suitable to the needs and goals of a corporation. Several questions must be answered prior to the opening. What kind of profit is the company looking to make? And what profit can they reasonably expect? What goals are they trying to meet by filing for an IPO? Who do they want to offer shares to? Will a traditional IPO fulfill their needs? Is an auction IPO better? By answering these, a company can navigate the process to meet their needs and those of their investors. Avaya is an internationally respected and successful communications network organization. This will be the second IPO in Avaya’s history, yet that doesn’t mean that the original method of filing will necessarily work for them this time. The traditional IPO, which Avaya utilized its first time around, has the potential to create upfront and committed investors. However, the Dutch method opens up Avaya to a much larger consumer base by allowing anyone to bid on and purchase shares. Banks stand a lot to lose in this method because of the loss of underwriting fees and they also lose the power of choosing which investors to allow access to the IPO (Carter, 2005). The power would be in Avaya’s hands. Avaya will payout less money to the banks underwriting the IPO. However, their investors may not see as much of the total revenue in the opening days of the IPO as the stock prices are much more stable and closer to market price. This is a pretty strong contrast to the tumultuous opening days that many traditional IPOs experience. However, since Avaya is looking to pay down debt by going public, it may be to their advantage to

References: Carter, A. (2005). Morningstar Follows Google’s Lead. Business Week. News Analysis, January 10, 2005 Gelsi, S. (2005). Google IPO auction made splash. Retrieved 21 February, 2012, from http://www.marketwatch.com Hensel, N. (2005). Are Dutch Auctions Right for Your IPO? 21 February, 2012, from http://hbswk.hbs.edu/archive/4747.html