Introduction: Canon Inc. is a Japanese multinational corporation which is specialized in manufacturing of imaging and optical products including camcorders cameras steppers photocopiers computer printers and medical equipment. Canon Inc headquarters are located in Ota Tokyo and Japan. It is primary listed on the Tokyo Stock Exchange and is a consistent of the TOPIX index and is secondary listed on the New York stock exchange. Canon is organized into three principal business segments: the Office Business Unit (the products include digital production printers copying machines large format inkjet printers multi-function devices and laser printers); the Consumer Business Unit (the products include calculators broadcasting equipment image scanners compact digital cameras digital video camcorders digital SLR cameras single function inkjet printers interchangeable lenses and inkjet .wikipedia.org/wiki/Multifunction_printer” title=”Multifunction printer”>multifunction printers ); and the Industry and Others Business Unit (the products include LCD lithography equipment computers ophthalmic equipment magnetic heads handy terminals medical imaging equipment micro motors and semiconductor lithography equipment). Current Stock Price of the company ¥3 285(New York Stock Exchange) 2010 2011 2012 Company Sales/ revenue ¥3 706 901 ¥ 3 557 433 ¥ 3 479 788 Company profitability (net income) ¥246 603 ¥248 630 ¥224 564 Total assets ¥3 983 820 ¥ 3 930 727 ¥ 3 955 503 Total liability ¥1338038 ¥1379595 ¥1357477 Owner’s equity ¥2 645 782 ¥ 2 551 132 ¥ 2 598 026 Profitability and nature of operating activities of the company attracts me to choose this company for financial analysis. A company attempting to raise additional capital may decide to perform an IPO (Initial Public Offering) in which they establish shares of stock which can be traded by the public in the secondary market. The initial issuance is a way to inject potentially needed capital and deleverage a business (highly leveraged firms carry higher risks). Steps in performing and IPO include: Selecting an investment bank This is the process in which the firm will choose the investment firm who will help the company with the issuance. The investment bank will then become referred to as the underwriter or lead underwriter. They will set a preliminary price and help assign a value to the company. Picking the right investment bank is important because often times their reputation helps convince buyers to invest. They also have access to wealthy investors and are able to sell issuances to existing clients. The Underwriting Syndicate This is the process where the investment bank team lends its expertise in the underwriting process. They will either guarantee with the stock issuance a “firm commitment” underwriting or do a “best efforts” agreement. Bank don not give guarantee for “Best efforts” agreements that securities will sell. Most IPOs are handled through “firm commitment” underwriting. This means that the underwriter guarantees the issuance by first purchasing the shares then turning around and selling them to investors. Syndicates are created to minimize risk for the underwriters.. Underwriting syndicate is the collective group and selling group of investment banks. Lead underwriter charges 7% of the gross proceeds which is referred as spread. Spread is the compensation which lead underwriter receives. Lead underwriter receives 20% of the gross receipt and 60% is paid as selling commissions and remaining 20% is paid for legal and travelling expenses. (Ellis Michaely O’Hara 1999). During this stage the prospectus is created and becomes part of their registration which a company files (on Form S-1) as its intent to go public. A component of the Form S-1 is the “Red Herring” report (or preliminary prospectus) and becomes the main tool once it is approved by the SEC . The Roadshow and Book Building Once the underwriter is selected the group will go on a week tour referred to as the roadshow. The roadshow is where the underwriter group travels to a new city to meet with potential investors and attempt to attract them. During this process the company is required by the SEC to enter a “quiet period” where the preliminary prospectus (“Red Herring”) is the main selling tool. The issuing company and the investment bank is permitted to answer questions but not allowed to put anything into writing. This is also the part of the process where the investment bank begins “book-building”. The term book building refers to the process where the investment bank determines the number of shares that each investor is willing to buy. These trips are typically geared to larger more institutional investors as well as retail salespeople and do not typically include the “average Joe” investor. The issuing price is then set on the evening before the offering date. Then comes the excitement of the first day of trading. Reference Ellis Michaely O’Hara 1999. A Guide to the IPO Cornell University
