The Mount Cavendish Gondola Company was established with the objective of obtaining funding to build an aerial gondola near Christchurch, New Zealand. Its efforts to raise money from the public to fund development of the project were a qualified success. Subsequently the company failed to reach the revenue targets set out in the prospectus. The initial focus of the case is on a neglected aspect of the initial public offering process - the difficulties in forecasting cash flow for a start-up company when there is a constraint on funds for market research. In particular, the case promotes a discussion of how to estimate potential patronage for a tourist facility from population data. There is an examination of the difficulties faced in completing the IPO. Participants will gain an insight into a practical reason for underpricing. The case then moves on to examine the structuring and underwriting of one of the subsequent rights issues the company undertook. One outcome of the rights issue is that it could have been, ex post, construed as a reverse takeover – the issue was not underwritten and there was a substantial shortfall. The case provides a framework for a discussion of how a transaction can have implications for investors other than the apparent outcome. A discussion on signalling in the context of a rights issue closes the case.
Contact The University of Auckland Business Case Centre
|Business Case Study No||UA-2009-029|
|Number of Pages||10|
|Company||Mount Cavendish Gondola Company Limited|
|Source||Auckland, NZ. Publisher: University of Auckland Business Case Centre. Pages: 1 - 11|