Hop-in-Foods

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Hop-In Food Stores, Incorporated Strategy Paper There are many risks associated with both underpricing and overpricing an IPO relative to the underwriting company as well as to the company issuing the IPO. If Scott and Stringfellow were to underprice the IPO, they could easily be criticized for not obtaining the maximum possible value for Hop-In Food. This could lead to a loss of underwriting business not only from Hop-In Food, but from other corporations as well. Scott and Stringfellow could lose a good reputation and solid brand if they underprice Hop-In’s IPO, and there could be a possible increase in litigation costs from Hop-In. If Scott and Stringfellow were to overprice Hop-In’s IPO, there is a chance that the market will not develop and that the securities would be “stuck on the banker’s shelf.” In the case of Hop-In, Scott and Stringfellow purchased all of the offerings, meaning that all of the risk associated with properly pricing and selling them was transferred to Scott and Stringfellow. Goodwill among Scott and Stringfellow and the selling group would be damaged and their network would be weakened. If the IPO is underpriced, the risks for Hop-In vary. A low initial price can easily and immediately make Hop-In lose significant amounts of profit if there are considerable stag profits. The lost capital from the stock price jump could have been raised for and reinvested in the company. If the IPO is overpriced, Hop-In risks losing market with their stock. If the stock is overpriced and the stock market significantly declines on the first day of the offering, the IPO’s marketability and value could be lost. Speculation could occur quickly, and the firm’s exposure to potential downturns in the market increases, lowering the value even further. Other factors that Mr. Merriman should consider when valuing the IPO are things such as: the new President…...

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