Topic 1.  Financing International Operations: Prada’s Foreign IPO

Most multinational companies (MNCs) secure equity funding in their home countries; however, some may choose a global IPO in which “they can simultaneously access equity from multiple countries” (Madura, 2015, p. 523).  In placing the stock, these MNCs focus on a few countries where they have large subsidiaries that require financing.  The MNC’s stock is listed on a foreign exchange in the foreign country and is denominated in its local currency allowing investors to trade their stocks there.  The local investors will only purchase stocks in a global IPO if the MNC offers a large number of stocks locally as this ensures a more liquid and active local secondary market for the stock, makes trading them easier for the local investors (Madura, 2015).

Based on the required readings and research, discuss:

• Why did Prada need additional capital?
• Why did Prada choose to issue its IPO in Hong Kong? What were the advantages and disadvantages of doing so?
• What circumstances might make a foreign IPO ineffective for a company like Prada?
• What other financing options were available to Prada?
• What currency exposure risks did Prada face? How could the company have hedged against them?
• For a family-owned private company such as Prada, how did the dilution effect of the IPO impact their control of the company?

Sources used in the development of the Prada Mini Case Study (not required reading!):

Daniel, J.D., Radebaugh, L.H., & Sullivan, D. P. (2015). International business (15th ed.). Upper Saddle River, NJ: Pearson Education

Madura, J. (2015). International financial management (12th ed.).  Stamford, CT: Cengage Learning