STEPS TO SUCCESS
Janet Richards fixes her eyes on those of her partner Gilbert Baker and says firmly, "All right. Let's do it." And with those words, InterCat, a firm founded by Janet and Gilbert that specializes in the design and maintenance of Internet catalogs for small consumer businesses, will be going public. InterCat employs 30 individuals, with the majority of them computer programmers. Many of the employees have followed the high-technology market very closely and have decided that since high-technology firms are more understood and valued in the United States than in other countries, InterCat should issue its stock only in the United States. Five million shares of InterCat stock will comprise this new issue. The task the company has ahead of itself is certainly daunting. Janet and Gilbert know that many steps have to be completed in the process of making an initial public offering. They also know that they need to complete the process within 28 weeks because they need the new capital fairly soon to ensure that InterCat has the resources to capture valuable new business from its competitors and continue growing. They also value a speedy initial public offering because they believe that the window of opportunity for obtaining a good stock price is presently wide open-the public is wild about shopping on the Internet, and few companies offering Web page design services have gone public. Because the 28-week deadline is breathing down their necks, Janet and Gilbert decide to map the steps in the process of making an initial public offering. They list each major activity that needs to be completed, the activities that directly precede each activity, the time needed to complete each activity, and the cost of each activity. This list is shown below.
Janet and Gilbert present the list of steps to the employees of InterCat. The head of the finance department, Leslie Grey, is fresh out of business school. She remembers the various project management tools she has learned in business school and suggests that Janet and Gilbert use PERT/CPM analysis to understand where their priorities should lie.
(a) Draw the project network for completing the initial public offering of InterCat stock. How long is the initial public offering process? What are the critical steps in the process?
(b) How would the change in the following activities affect the time to complete the initial public offering? Please evaluate each change independently.
(i) Some members of the syndicate are playing hardball. Therefore, the time it takes to negotiate the commitment of each member of the syndicate increases from 2 to 3 weeks.
(ii) The underwriters are truly math geniuses. Therefore, the time it takes to calculate the issue price decreases to 4 weeks.
(iii) Whoa! The SEC found many deficiencies in the initial registration statement. The underwriters must therefore spend 2.5 weeks amending the statement and resubmitting it to the SEC.
(iv) The new issue does not comply with the "blue sky" laws of a handful of states. The time it takes to edit the issue for each state to ensure compliance increases to 4 weeks.
(c) Janet and Gilbert hear through the grapevine that their most fierce competitor, Soft Sales, is also planning to go public. They fear that if InterCat does not complete its initial public offering before Soft Sales, the price investors are willing to pay for InterCat stock will drop, since investors will perceive Soft Sales to be a stronger, more organized company. Janet and Gilbert therefore decide that they want to complete the process of issuing new stock within 22 weeks. They think such a goal is possible if they throw more resources- workers and money-into some activities. They list the activities that can be shortened, the time the activity will take when it is fully shortened, and the cost of shortening the activity this much. They also conclude that partially shortening each activity listed below is possible and will give a time reduction and cost proportional to the amounts when fully shortening.
How can InterCat meet the new deadline set by Janet and Gilbert at minimum cost?
(d) Janet and Gilbert learn that the investment bankers are two-timing scoundrels! They are also serving as lead underwriters for the Soft Sales new issue! To keep the deal with InterCat, the bankers agree to let Janet and Gilbert in on a little secret. Soft Sales has been forced to delay its public issue because the company's records are disorganized and incomplete. Given this new information, Janet and Gilbert decide that they can be more lenient on the initial public offering timeframe. They want to complete the process of issuing new stock within 24 weeks instead of 22 weeks. Assume that the cost and time to complete the appointment of the registrar and transfer agent are the same as in part (c). How can InterCat meet this new deadline set by Janet and Gilbert at minimum cost?