The focus of this paper is to examine and research the financing issues that an organization must face when going public. The team has selected Chipotle Mexican Grill, Inc. as the organization which has had an initial public offering in the last three years. The learning team will address registration, disclosure, and compliance issues and cost of issuance. In addition, the team will examine the impact on ownership control and return as well as the source and application of funds.
Financing Issues that an Organization Faces When Going PublicAn Initial Public Offering (IPO), is extremely expensive for organizations. It is common for a small business to pay between $50,000 and $250,000 to organize and publicize an offering. According to Paul G. Joubert, author of The Portable MBA in Finance and Accounting, IPO claims between 15 and 20 percent of the proceeds of the sale of stock (IPO Forum, 2008). Some other costs associated with going public include lead underwriter's commission, expenses for legal and accounting services, printing costs and filing costs with the Securities and Exchange Commission (SEC). Organizations may have ongoing expenses for legal, accounting and filing services (IPO Forum, 2008).
Issues Impacting Dividend Policies and Constraints on Dividend PaymentsA firm must examine all financing and investment issues before determining the proper payout of dividends for their organization. Some organizations' opt to pay out smaller cash dividends to reserve earnings for future expansion. It is ideal for an organization to start with smaller payouts, and continue with conservative dividends per share. This payout decision is a result of the organization's capital budgeting decision.
Another option for payout of dividends is to finance a large portion of their capital expenditures. This will free up cash that the organization can pay out to shareholders. This payout decision is a result of the decision to borrow for the organization's growth (Brealey, Myers, and Marcus, 2007).
ChipotleChipotle Mexican Grill, INC. is a "fast-casual" restaurant. It offers customers the quality food they would receive in a restaurant with "fast-food" style quickness. The first opening was in 1993 by the founder and CEO Steve Ells. They serve very few things but claim to provide thousands of options. Their base choices are burritos, burrito bowls, tacos, and salads. Chipotle's culture is "Food With Integrity" which involves using "unprocessed, seasonal, family-farmed,.naturally made, added hormone free, organic, and artisanal", in the words of Chipotle.com. Chipotle claims there products to better, all the way from dairy to meat. They only purchase from farms in which the animals are treated humanely and naturally raised. This philosophy has allowed Chipotle to grow from one location in 1993 to 670 in 2007 as well as compete in the fastest growing industry in restaurants (Chipotle, 2008).
Registration, Disclosure and Compliance IssuesChipotle filed a form S-1/A with the United States Securities and Exchange Commission on December 23, 2003. Two securities were registered under the filing as follows: Class A common stock, par value $0.01 per share, offered by the registrant and Class A common stock, par value $0.01 per share, offered by the selling shareholder.
( Form S-1/A ,2005) Common stock offered by the registrant is at a Proposed Maximum Aggregate Offering Price of $1 million dollars and a registration fee of $11,770. The Proposed Maximum Aggregate Offering Price of the common stock offered by the selling shareholder is $49.5 million (over allotment selling to the underwriters, if any, factored in to total) with a registration fee of $5,296.50. A total of 78,78,788 shares is included in the IPO and broken down by 60,60,606 from Chipotle Mexican Grill, INC and 18,18,182 from McDonalds Ventures, LLC as the selling shareholder. Chipotle intends to list their common stock on the New York Stock Exchange under the symbol...
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