Trx Case

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1. How does the strategic repositioning of the company and the use of the IPO as an exit for minority shareholders affect the attractiveness of the IPO?

The strategic repositioning of the company was to gradually shift away and exist from customer care which TRX generated more than 50% in 2000, and Davis’s long term strategy was to focus on the higher margin sectors, such as data transaction and integrations. By shifting away from customer care, of course would reduce operational cost and increase bottom line for the company but I think it would affect the attractiveness of the IPO in negative way. If I was an investor I would be in agreement with TRX only if they were reducing the customer care due to the high operating cost, but I mean reducing, not totally exist. In the service based company, interacting with end consumers is critical even know it has lower margin but the company should be able to profit from it, if it continues to operate in the future which I believe would create higher customer satisfaction and strong long term relationship with end-consumers. Davis decided to use the strategy to make the financial data looking good or positioning the company for the IPO which he knows that he was going to do in the future because the company need capital to support the firm’s growth, however to exist a sector was not good way to start with the risk that they might have lower customer satisfaction, as the company went IPO, any negative issues would tank the company’s shares if they were not in good relation with end consumers. Davis had chance to improve the attractiveness of the IPO, he had two options; first one was go ahead with the IPO at the lower price of $9 per share, then he had to deal with Hogg Robinson whose intention was to exit TRX, and Sabre whose was in its best interest to sever the relationship with TRX. Their lack of agreement would eventually block the IPO, in order to prove the attractiveness of the IPO; Davis has to convince those two companies to agree upon the price so the proper managerial plan could carry forward. Second, David would just wait for some time to grow the company and complete the exit from the customer care business before the next IPO attempt while increase higher margin businesses. The use of the IPO as an exit for minority shareholders would eventually help the company better alignment of his stakeholders while offering liquidity for those minority shareholders an “easy out” which would increase the attractiveness of the IPO for small investors.

1. Estimate a preliminary file range for TRX’s shares.
CSFB had prepared a valuation of the file price range by comparing TRX to comparable publicly traded companies, there are really no direct competitors as a result there were not going to be perfect comparable company. The methods CSFB and TRX’s management believed are best for them are both enterprise and price earnings multiples which would bring the company credit for its strong cash flow and an improving earnings outlook. In the EXHIBIT 9, by using enterprise multiple methods which a measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is calculated as market cap plus debt, minority interest and preferred shares minus total cash and cash equivalents. Base on the result estimated from 2005-2006, the enterprise for online travel sector were around 15, for Payment Processors were about 10 and for distribution is around 7. The calculation is based on CSFB’s financial projections on its own research and forecasts of TRX’s business, and is more conservative if compared to TRX’s management’s forecasting. The second method is price earnings, it is a valuation of a company’s current share price compared to its per share earnings and we calculated it by taking market value per share divided it by earnings per share, the ratio for online travel is around 25, for payment processors is about 20, for...
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