Critical Thinking Resource Finance

We developed this guide to help you maximize The Wall Street Journal as a resource for your classes. You’ll be able to energize discussions and engage students with tangible examples of course concepts that your students can apply in the real world. In addition, with the help of faculty partners, we’ve curated a special collection of our most popular and thought-provoking articles across business. For each of these readings, we provide a summary, correlation to course topics, classroom applications and questions suitable for launching discussions and conducting assessments.

Here are some of the many ways to incorporate WSJ into your courses:

• Course Readings: Assign articles as required reading alongside your textbook sections. For best results, include assessment questions on quizzes and exams. • Discussion Launchers: Use articles to spur classroom and threaded discussions in online and hybrid courses on core concepts and current events. • Extra Credit: Allow students to read optional articles and answer assessment questions for extra credit. • Group Projects: WSJ is a rich source of real-world topics for group research and presentation projects. • Research Papers and Case Studies: WSJ features provide timely citations for research projects.

Theme: Initial public offerings (IPOs)

Table of Contents

1. 2019: The Year of IPO Disappointment

2. Investor Advocates See Risks in Silicon Valley’s Favorite IPO Alternative

3. Aramco Adds to Record IPO After Selling Additional Shares 2019: The Year of IPO Disappointment Market

Reporter: Maureen Farrell Reviewed by: Brad Gibbs, Brown University Date: December 29, 2019 Topics: IPO Processes, Valuation Link to Article: Click Here

Summary: After years of waiting, public investors in 2019 finally got the chance to put their money into a class of U.S. startups famed for transforming industries over the past decade. However, things did not go as planned.

A myriad of issues, including overblown valuations, lack of profits, a government shutdown and corporate- governance concerns, put the brakes on what could have been a record-smashing year for dollars raised by U.S.-listed initial public offerings. In 2019 (through December 26), 211 companies went public, raising $62.33 billion—far below expectations that offerings would eclipse 1999’s record of nearly $108 billion.

Many investors in 2019 IPOs remain underwater. Shares of technology startups and other companies that went public in the U.S. this year are trading an average of about 23% above their IPO prices, according to Dealogic. That is well short of the nearly 30% gain in the S&P 500 index. Tech IPOs performed significantly worse, trading up 8% compared with the tech-laden Nasdaq Composite Index, which is up roughly 35%. The underperformance of this year’s IPO class is leading to a pivot in investor preferences from growth to profitability, which will no doubt impact the appetite for, and pricing of, future IPOs.

Classroom Application: Given the significant press that WeWork, Uber, Lyft, Pinterest, Peloton and other “unicorns” received, this article could be assigned in connection with a unit on capital raising, most notably, initial public offerings (IPOs) and could be used to catalyze a discussion on the factors impacting the pricing and trading of IPOs.

Topics include: • IPO Processes: The well-publicized IPOs of the companies referenced in the article creates an opportunity to discuss the IPO process from start to finish, including venture capital fundraising, the selection and role of underwriters, primary versus secondary shares, the IPO marketing process, valuation and pricing, the “green shoe” option and post-IPO stabilization. • Valuation: The article is focused on the investor skepticism that greeted many of 2019’s most highly anticipated offerings and provides a basis for discussing the factors that determine share price values.

Continued on next page. cont.

Questions: 1. What are some of the factors cited in the article that led to investor wariness vis-a-vis IPOs in 2019? 2. As a result of the performance of IPOs in 2019, how have investor preferences changed, according to those interviewed in the article? 3. Which sector’s IPOs were positively received by the market and why? 4. What data is presented in the article that appears to substantiate the arguments referred to in question 2 above? 5. Discuss some of the trends referenced in the article with regards to the 2020 IPO pipeline. Investor Advocates See Risks in Silicon Valley’s Favorite IPO Alternative

Reporter: Alexander Osipovich Reviewed by: Brad Gibbs, Brown University Date: January 3, 2020 Topics: IPO Process, Regulation of Equity Markets Link to Article: Click Here

Summary: Following the listings of Spotify Technology SA and Slack Technologies Inc., direct listings have been embraced by Silicon Valley venture capitalists and big technology companies. A direct listing is an alternative to a traditional IPO in which a company floats its shares on an exchange without hiring banks to underwrite the offering. This process allows companies to save on fees and bypass some of the restrictions of standard IPOs, such as lockups that prevent insiders from immediately selling their shares.

The year ahead may bring more direct listings, including from the likes of well-known “unicorns” such as Airbnb Inc., the home-sharing company. The SEC is also likely this year to rule on a proposal from NYSE to let companies use direct listings to raise capital, a plan that could make the process appeal to a broader array of firms eyeing the public markets.

Classroom Application: The listings of Spotify and Slack have introduced the concept of “direct listings” to a significantly broader audience and, as a result of the perceived deficiencies of the traditional IPO process with respect to price discovery and transparency, have led to increased interest in direct listings as a potential tool for equity capital raising, as opposed to simply a mechanism for creating liquidity.

This article could be assigned after a lecture/reading on traditional IPO processes and used to catalyze a discussion on the pros and cons of a fully marketed, underwritten offering versus a direct listing, as well as introduce the various regulations that govern the traditional IPO process and would need to be applied/adapted for direct listings incorporating the raising of primary capital.

Continued on next page. cont.

Topics include: • IPO Process: The rising interest in direct listings provides an opportunity to discuss the traditional IPO process, most notably the role of underwriters, book-building, lockups and the SEC. • Regulation of the Equity Markets: Proposals to enable direct listings with a primary capital component raise various issues related to investor protection and provide an opportunity to discuss the Securities Act of 1993 and the roles of the Securities Exchange Commission (SEC) and underwriters.

Questions:

1. What is a direct listing and why would a company potentially find it an attractive way to go public?

2. Based on the article, how do direct listings differ from traditional IPOs?

• Compare and contrast the IPO prospectus for Uber and the registration statement for Spotify.

3. What are some of the concerns raised by selected industry participants in connection with the potential broadening of direct listings to incorporate primary capital raising?

4. Slack is currently the subject of shareholder litigation, which is not uncommon for listed firms. Why is its defense considered novel and what are the concerns raised in the article from an investor protection standpoint should Slack’s argument in the suit prevail? Aramco Adds to Record IPO After Selling Additional Shares

Reporters: Rory Jones Reviewed by: Brad Gibbs, Brown University Date: January 12, 2020 Topics: Topics: IPO Process, Sovereign Wealth Funds (SWF) Link to Article: Click Here

Summary: Saudi Aramco netted an additional $3.8 billion from its record initial public offering as it sold more shares to meet investor demand. The state oil giant, officially called Saudi Arabian Oil Co., listed on the Saudi Arabian stock exchange last month after selling 3 billion shares at 32 Saudi riyals ($8.53) each to raise $25.6 billion. It allocated 450 million more shares to investors during the book-building process as part of efforts to support the price for a month in the market. As a result of this additional sale, Aramco’s IPO is now worth $29.4 billion, surpassing the record set by Chinese online commerce company Alibaba Group Holding Ltd., which raised $25 billion in 2014. The extra $3.8 billion from the Aramco IPO provides the Saudi government with more cash to spend domestically and boost the economy.

Classroom Application: This article could be assigned in connection with a unit on capital raising, specifically IPOs. Due to the size of Aramco’s offering and the lengthy gestation period, there has been significant coverage of the IPO process and this is one of a number of articles that could be incorporated into a broader case study.

Topics include: • IPO Process: Not unlike the other articles mentioned above, this article provides an opportunity to explore the IPO process from start to finish. In particular, this piece can be used to explain the “greenshoe” or overallotment option and post-IPO price stabilization. • Sovereign Wealth Funds (SWF): Aramco’s IPO was an important monetization event for the Saudi government and its sovereign wealth fund, the Public Investment Fund. The role of SWFs in the private and public markets has increased in the past decades and merits discussion.

Continued on next page. cont.

Questions:

1. What were selected issues faced by Aramco in connection with its IPO in terms of valuation and investor interest?

2. Based on this article and additional desktop research, construct a timeline of key events leading up to Aramco’s IPO, including the evolution of views on valuation and listing venue(s).

3. How has Aramco traded since its IPO? Based on the article, what are selected factors that appear to impact Aramco’s (and other oil producers’) share price and why?

4. What is an overallotment option? What purpose does it serve?