Tiffany's Equity financing

Essay by desakiUniversity, Master'sA, April 2008

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This premier retail jewelery company was bought from its parent, Avon, by a group of investors led by its own management in 1984. The company was highly leveraged, financially, and had to scramble to meet the cash flow and earnings requirements led down by its lenders. The famous jewelry company, whose Fifth Avenue store is the epitome of quiet sophistication and magic for young woman, is offering stock to investors at a price that promises glittering profits for its owners. Management effected a turnaround and decided to "go public" to pay down its debt and provide further growth funds. We will assess the company's relative appeal to investors and refine a pricing recommendation for the securities underwriting syndicate.

As investment bankers, we recommend a price of $23 per share that would be the most appropriate. We think that the price of $21 per share is too low since it is not in favor of the underwriters, as their reputation might be harmed.

At the same time, choosing a low price results to future problems. Moreover, we are opposing to the company's desire for setting a price of $25 per share because if the issue is priced too high, it may be unsuccessful and be withdrawn.

TIFFANY'S OPERATIONS SINCE THE LBOSince the leverage buyout (LBO), the company experienced severe problems regarding its accounts receivable and inventory management controls systems. Inventory was both difficult to store and locate because of an antiquated manual accounts receivable system, accounts receivable were not monitored and collection efforts were minimal. Moreover through its acquisition by Avon in 1979, management has shifted from a decade-old policy of trying to reach a larger cross section of consumers to concentrate on affluent customers. This strategy seemed to have paid off handsomely. Tiffany's sales in the fiscal year (1987) ended...