Hyatt Value IPO Journey Book Hyatt Corporation

Hyatt Value IPO Journey Book

Hyatt Corporation Value IPO Journey Book

Hyatt Corporation is a global company widely known for its brand of hotels, resorts, residential, and vocation ownership properties. Established by Jay Pritzker in 1957, Hyatt's worldwide portfolio consists of 453 Hyatt-branded properties scattered in the North America, Europe, Middle East, Africa, Latin America, Asia Pacific and Southwest Asia. Hyatt manages franchises and develops residential and brand hotels, and the company full service hotels is operated under five brands which are Hyatt, Park Hyatt, Hyatt Regency, Andaz, and Grand Hyatt.(Corporate Information 2011). Since the beginning of the year 2000, Hyatt has been performing excellently, and the company cash flow has doubled during the period. However, in 2009, Hyatt's revenue fell by 19% and the company's cash flow fell by 50%, which made the company to post the loss of approximately $36 millions in the first quarter of 2009. In addition, the company's consolidated revenues decreased compared to the 2008 fiscal year. The problem that faced Hyatt in 2009 was due to the current global financial crisis that affected major corporations in advanced countries. With the financial problems facing Hyatt in 2009 that served as threat to the company growth, Hyatt Corporation made the decision to go public by initiating the Initial Public Offering (IPO).

The objective of this essay is to investigate Hyatt strategy behind its recent IPO decision.

Hyatt strategy behind its recent IPO decision

"An Initial Public Offering (IPO) is a legal process in which a company registers its securities with the Securities and Exchange Commission (SEC) for sale to the general investing public." (Evans, 2011 P. 2). Many Companies view the process of going public as the route to the financial rewards and success. Following the financial difficulties that Hyatt faced in 2009, the company made the decision to go public by initiating the IPO. There are several strategies behind Hyatt's IPO decision.

First, Hyatt decision to go public is a broader access to raise capital. In the United States, going public is a single biggest source of capital for the corporate organizations. Following the Hyatt revenue decline in 2009, Hyatt Corporation makes a strategic decision to initiate the IPO to raise capital from the public. Typically, the equity capital markets are the cheap sources of funds for organizations, and equity markets are cheaper to raise funds than the bank loans. Realizing the advantages of raising funds from the equity markets, Hyatt Corporation decided to initiate the IPO in 2009. (Evans, 2011 P. 2). Having made the decision to initiate the IPO, Hyatt Corporation filed the company's registration statement (S-1) with the Securities and Exchange Commission (SEC) in 2009 in accordance with the Securities Act of 1933 and 1934. (Hyatt Annual Report 2010).

Hyatt Registration Statement (S-1)

Following the decision to go public, Hyatt Corporation registered with the SEC on November 4, 2009. A registration statement was filed on Form S-1 ( File No 333-161068), which is relating to the company initial public offering of an aggregate of 43,700,000 Class A common stock. The Class A common stock of 5,700,000 shares and 43,700,000 were registered under the registration statement. Subject to the underwriter exercise, the initial public offering price was $25.00 per share. While the aggregate offering price for the share registered and the shares sold to the public was $950 millions, the aggregate offering price for the shares registered was $142 millions. After the initial public offering closed on November 10, 2009, Hyatt received net proceed of $127 millions after deduction all the expenses including underwriting discount of $7 millions and other expenses that worth 8 millions. Moreover, the company's selling stockholders received net proceed of $901 millions after deducting the underwriting discount worth $49 millions. Goldman, Sachs & Co, Deutsche Bank Securities Inc., and J.P Morgan Securities Inc. acted as the joint lead managers. Pending the full application, Hyatt has invested the unused proceed in the short-term interest bearing securities, however, S-1 filing was successful on November 4, 2009 with the SEC pursuant to Rule 424(b).

IPO Value Journey book

Book value is one of the most important factors that investors consider before investing in a company. A book value is defined as the ratio of shareholders funds plus the number of the outstanding shares. In another words, the books value is the net-worth of shares after tax. Book value could also be calculated as follows:

Total Assets -- (Intangible Assets + Liabilities).

Although, the book value is different from market value, however, the book value often influences changes in the market values. Since many sophisticated investors consider book value as the tangible information before investing in a company, book value could also be viewed as the value of the company assets listed in the balance sheet. Meanwhile, the book value per share is also calculated as follows:

Book Value per Share = (Shareholders' Equity - Preferred Equity) / Total Outstanding Common Shares

According to Wadhwani, (2010), IPO event is the starting point by which an organization employs to deliver values to the stakeholders in order to enjoy continuous patronage of the public. Since Hyatt Corporation has initiated its IPO in 2009, the company has been able to deliver values to the investors. Hyatt has been able to demonstrate operational excellence by delivering the post-IPO shareholders value. (Fig 1 reveals the Hyatt share performances from 2009 to 2011).

Using the following formula:

Total Assets -- (Intangible Assets + Liabilities).

This paper is able to calculate the Book Value of Hyatt Corporation since the company has gone public in 2009.

In 2009 (Millions Dollars)

Total Assets= $7,155

Intangible Assets: $284

Liabilities: $2,115

Using the following formula: Total Assets -- (Intangible Assets + Liabilities).

The book value of Hyatt in 2009 is as follows:

Book Value 2009: 7,155- (284+2155)

=7155-2439

= 4716

Book Value for the 2009 fiscal year = $4,716 millions

In 2010 fiscal year, the company book value is as follows:

Total Assets= $7,243

Intangible Assets: $280

Liabilities: $2,112

Book Value 2010: 7,243- (280+2112)

=7243-2392

= 4851

Book Value for the 2010 fiscal year = $4,851 millions

Looking at the company book value between 2009 and 2010, it is revealed that Hyatt Corporation been able to improve the shareholders value since it has initiated the IPO in 2009.

From the data provided by Ycharts in September (2011), Hyatt Corporation Book Value Per Share ranking scores 28 out f the 4367 companies identified for the overall Book Value per Share ranking. In addition, by comparing the company Book Value per share ranking in the service sector, Hyatt has scored 99% of overall scoring of 8 out 836. However, the company scores 92% in the industrial ranking.

Return Performances

Analysis of the performances of the company stock from 2009 to 2011 shows that the company has performed excellently. (See Fig 1).Apart from the stock performances, Hyatt Corporation has also demonstrated the increase in the consolidated revenue of $197 millions in the fiscal year 2010, which is 6% increase compared to the end of the fiscal year 2009. (Annual Report 2010). The performances of Hyatt Corporation make the Financial Times (2011) to conclude that

"Year over year, Hyatt Hotels Corporation has been able to grow revenues from $2.0B to $2.1B. Most impressively, the company has been able to reduce the percentage of sales devoted to cost of goods sold from 137.34% to 135.48%. This was a driver that led to a bottom line growth from a loss of $43.0M to a gain of $66.0M." ( P. 1).