Jetblue Ipo Case
Business Finance Policy: FINA 380-01
Dr. William Brent
February 3rd 2009
JetBlue Airways: IPO Valuation
Table of Content
I. Statement of Problem
II. Alternative Solutions
III. Analysis of the Alternatives
IV. Final Recommendation
V. Appendix
I. STATEMENT OF THE PROBLEM David Neeleman, CEO of JetBlue Airways and his management team have realized that JetBlue is still making profit despite the many challenges facing the airline industry after the September 11th 2001 terrorist attacks. Despite these positive returns; JetBlue plans on raising capital through an Initial Public Offering (IPO) to support its aggressive growth and to also offset portfolio losses to their venture capital investors. This is a simple, theoretical, but very involving task , however the main challenge is to determine the right offer price for JetBlue Airways. The lead underwriter and management of JetBlue had initially concluded that price will range from $22 to $24, but realize that this will lead to an oversubscription, so the management of JetBlue has raised it to the range of $25 to $26.
II. ALTERNATIVE SOLUTIONS JetBlue Airways can use many approaches to determine the right offer price for its IPO. Some of the options available to the management and lead underwriter are listed below. • Using Discounted Cash Flow (DCF) Analysis • Using valuation multiples • Pricing the issue below or above the current IPO price range.
III. ANALYSIS OF ALTERNATIVES DCF Analysis JetBlue Airways can use a discounted cash flow (DCF) analysis to price its IPO. This is a valuation approach used to value firms. The best approach will be to use the financial forecast provided in Exhibit 13 and discount it to find the current enterprise value, then dividing this computed value by the estimated number of shares outstanding. A very important metric that should carefully be analyzed is JetBlue’s cost of
Dr. William Brent
February 3rd 2009
JetBlue Airways: IPO Valuation
Table of Content
I. Statement of Problem
II. Alternative Solutions
III. Analysis of the Alternatives
IV. Final Recommendation
V. Appendix
I. STATEMENT OF THE PROBLEM David Neeleman, CEO of JetBlue Airways and his management team have realized that JetBlue is still making profit despite the many challenges facing the airline industry after the September 11th 2001 terrorist attacks. Despite these positive returns; JetBlue plans on raising capital through an Initial Public Offering (IPO) to support its aggressive growth and to also offset portfolio losses to their venture capital investors. This is a simple, theoretical, but very involving task , however the main challenge is to determine the right offer price for JetBlue Airways. The lead underwriter and management of JetBlue had initially concluded that price will range from $22 to $24, but realize that this will lead to an oversubscription, so the management of JetBlue has raised it to the range of $25 to $26.
II. ALTERNATIVE SOLUTIONS JetBlue Airways can use many approaches to determine the right offer price for its IPO. Some of the options available to the management and lead underwriter are listed below. • Using Discounted Cash Flow (DCF) Analysis • Using valuation multiples • Pricing the issue below or above the current IPO price range.
III. ANALYSIS OF ALTERNATIVES DCF Analysis JetBlue Airways can use a discounted cash flow (DCF) analysis to price its IPO. This is a valuation approach used to value firms. The best approach will be to use the financial forecast provided in Exhibit 13 and discount it to find the current enterprise value, then dividing this computed value by the estimated number of shares outstanding. A very important metric that should carefully be analyzed is JetBlue’s cost of