The Share Price of Cobalt International Energy - Essay Example

Due to the nature of its business, the company has not been able to garner any revenue as it is in the oil exploration business. Its future performance will depend upon the possibility of oil discovery and potential reserves in the proven oil fields. The reason for choosing the company is to show that the company's shares can trade in the stock market even when the company has neither made any sales nor any profit so far. The company continues to make operating expenses necessary for oil exploration activities for the last several years. This also shows that investors continue to demand shares of Cobalt because they are quite optimistic about its oil finds and once, the company is successful in oil discovery; its stock price may flare up exponentially.

Initial Public Offering
Going public is a significant decision for any company. The advantage is that it opens up a new avenue for the company to garner funds for its expansion requirements. The process is certainly time-consuming and the company needs to be cautious in meeting several statutory requirements. While going ahead with a public issue, the important thing is to be noted that as per the US securities laws, it is incumbent upon the issuer to disclose all material information accurately and completely so that investors can make an appropriate decision. Misstatement or any omission of a fact can lead to a huge liability to the issuer, underwriters, board of directors, and controlling persons. IPO in the US market necessitates that the company's Chief Executive Officer and Chief Financial Officer has taken due care in establishing effective internal control over financing reporting to the general public. The company that is planning to go public needs to take a series of steps that can be described as per the following (Going Public in the US, 2008).

The Company Board Resolution
First of all, Cobalt's board needs to pass a resolution giving their consent to make an Initial Public Offering to the company (A Guide to going public, 2013).
Independent Auditors
The company needs to appoint independent auditors as approved by the SEC. The company and its auditors need to prepare all financial statements as per the US GAAP or IFRS (A Guide to going public, 2013).

SEC Registration
The company needs to complete registration with the SEC and take approval for an IPO by submitting all relevant information in the prescribed format (A Guide to going public, 2013).
Appointment of Counselor
This is required so that the counselor begins preparing a prospectus related to the IPO offering. Subsequently, the company needs to prepare presentation material for the "Road Show" for institutional investors (A Guide to going public, 2013).

Appointment of Underwriters
To take the company public, Cobalt needs to appoint underwriters or investment banks as they will purchase securities from Cobalt and will offer them to the public. Also, a necessary underwriting agreement with the concerned parties needs to be completed (A Guide to going public, 2013).
Deposit Agreement
The issuer will enter into an agreement with the depositary bank for the ADS facility (A Guide to going public, 2013).

Listing Formality
Cobalt needs to file a registration statement on form S-1 or F-1 and will make an application to list the shares on NYSE. This is done to facilitate the trading of the security of the company issued to the shareholders after the IPO allotment is over (Going Public in the US, 2008).

Moreover, the company needs to submit form F-1 to the SEC office 14-16 weeks before the effective date of IPO, known as the first confidential submission. After receiving SEC comments, the company will submit Form F-1 again 7-9 weeks before the effective date of IPO, known as the second confidential submission. The company also needs to remit applicable SEC registration fees and other fees 3 weeks before public filing (Going Public in the US, 2008).

Conclusion
Success factors of taking a firm public largely depend upon several key elements such as its past performance, its promoters, underwriters, and the current economic situation. Module 1 provides a good overview of the steps necessary for a successful IPO that include the preparation of accounts as per GAPP or IFRS and disclosing all material information in the prospectus accurately. Read More