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Glazer Drug Co. Case 23
Initial Public Offering
Purpose: The case deals with computing the cost of going public, the dilutive effects of an IPO, and the
return that must be earned on the net proceeds in order to avoid dilution. The case involves the generic
drug industry, which has an ever-increasing visibility. Of particular interest is the fact that the stock
skyrocketed in value after the IPO and the effect this has on a major selling stockholder who was one of
the founders of the company. It is up to the students to identify his potential displeasure with the
managing investment banker.
Relation to Text: This case should follow Chapter 15.
Complexity: The case is moderately complex and should require 1 hour.
Solutions
1. Spread = $37.50 – $36.68 = $ .82
2. Earnings per share before stock issue
* Note: Out of 20 million shares sold in the IPO, only 10 million are newly issued shares.
3. $ 36.68 Net price to the corporation
x 10 million New shares
4. To maintain EPS of $1.50, total earnings must be $165 million after the issue. The
calculations follow:
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written consent of McGraw-Hill Education.
This indicates an increase in earnings of $15 million. ($165 million new required earnings –
$150 million old earnings)
