[ValtoRulez]

Hi Everyone,

Just some general gyan on I-banking..

Generally, the breakdown of an investment bank includes the following areas:



Corporate Finance



The bread and butter of a traditional investment bank, corporate finance generally performs two different functions: 1) Mergers and acquisitions advisory and 2) Underwriting (Equity Capital Markets). On the mergers and acquisitions (M&A) advising side of corporate finance, bankers assist in negotiating and structuring a merger between two companies. If, for example, a company wants to buy another firm, then an investment bank will help finalize the purchase price, structure the deal, and generally ensure a smooth transaction. The underwriting function within corporate finance involves shepherding the process of raising capital for a company. In the investment banking world, capital can be raised by selling either stocks or bonds to investors.



Sales



Sales is another core component of any investment bank. Salespeople take the form of: 1) the classic retail broker, 2) the institutional salesperson, or 3) the private client service representative. Brokers develop relationships with individual investors and sell stocks and stock advice to the average Joe. Institutional salespeople develop business relationships with large institutional investors. Institutional investors are those who manage large groups of assets, for example pension funds or mutual funds. Private Client Service (PCS) representatives lie somewhere between retail brokers and institutional salespeople, providing brokerage and money management services for extremely wealthy individuals. Salespeople make money through commissions on trades made through their firms.



Trading



Traders also provide a vital role for the investment bank. Traders facilitate the buying and selling of stock, bonds, or other securities such as currencies, either by carrying an inventory of securities for sale or by executing a given trade for a client. Traders deal with transactions large and small and provide liquidity (the ability to buy and sell securities) for the market. (This is often called making a market.) Traders make money by purchasing securities and selling them at a slightly higher price. This price differential is called the "bid-ask spread."



Research



Research analysts follow stocks and bonds and make recommendations on whether to buy, sell, or hold those securities. Stock analysts (known as equity analysts) typically focus on one industry and will cover up to 20 companies' stocks at any given time. Some research analysts work on the fixed income side and will cover a particular segment, such as high yield bonds or U.S. Treasury bonds. Salespeople within the I-bank utilize research published by analysts to convince their clients to buy or sell securities through their firm. Corporate finance bankers rely on research analysts to be experts in the industry in which they are working. Reputable research analysts can generate substantial corporate finance business as well as substantial trading activity, and thus are an integral part of any investment bank.


Commercial banking vs. investment banking



While regulation has changed the businesses in which commercial and investment banks may now participate, the core aspects of these different businesses remain intact. In other words, the difference between how a typical investment bank and a typical commercial bank operate is simple: A commercial bank takes deposits for checking and savings accounts from consumers while an investment bank does not.



Commercial banks






A commercial bank may legally take deposits for checking and savings accounts from consumers. The typical commercial banking process is fairly straightforward. This process is debt driven.



Importantly, loans from commercial banks are structured as private legally binding contracts between two parties - the bank and you (or the bank and a company). Banks work with their clients to individually determine the terms of the loans, including the time to maturity and the interest rate charged. Your individual credit history (or credit risk profile) determines the amount you can borrow and how much interest you are charged. The same process applies to loans to companies as well - the rates are determined through a negotiation between the bank and the company.



Lets understand how a bank makes its money. On most loans, commercial banks in the U.S. earn interest anywhere from 5 to 14 percent. Ask yourself how much your bank pays you on your deposits - the money that it uses to make loans. You probably earn a paltry 1 percent on a checking account, if anything, and maybe 2 to 3 percent on a savings account. Commercial banks thus make lots of money, taking advantage of the large spread between their cost of funds (1 percent, for example) and their return on funds loaned (ranging from 5 to 14 percent).







Investment banks






An investment bank operates differently. An investment bank does not have an inventory of cash deposits to lend as a commercial bank does. In essence, an investment bank acts as an intermediary, and matches sellers of stocks and bonds with buyers of stocks and bonds.

Note, however, that companies use investment banks toward the same end as they use commercial banks. If a company needs capital, it may get a loan from a bank, or it may ask an investment bank to sell equity or debt (stocks or bonds). Because commercial banks already have funds available from their depositors and an investment bank does not, an I-bank must spend considerable time finding investors in order to obtain capital for its client.



Investment banks typically sell public securities (as opposed private loan agreements).

[reachmonil]

Hey...

seems a really informative post for all those aspiring MBAs and enthusiasts ... into the world of IB! well... moi a novice on the subject n would luv to know more about the same.

Keep up the good work - kabmilega and goelrinku - n keep the Gyan Ganga flowing!


BTW :

After 15%, for every 5% he has to make a 20% open offer.

KM.... can u explain this part again... wat do u mean when u say that after 15%... @ every 5% hes to make 20% offer?? 20% of wat?! n to whom ... shareholders... for exiting?

[reachmonil]

Originally Posted by kabmilega

In the first stage, Holcim will pay about $200m for the 40% in Ambuja Cement India (ACIL), which is held by private equity investors.

ACIL is a holding company that holds 13.8% ACC stake that Gujarat Ambuja bought from the Tata group in 1999. Gujarat Ambuja owns 60% in this outfit, i.e ACIL

In the second stage, Holcim will pay about $600m for new shares to be issued by ACIL. This will take the Swiss MNC's stake in ACIL to about 67% and dilute Gujarat Ambuja's holding to 33%, from the current 60%.

The funds that ACIL secures from this issue will then be used to make an open offer to ACC shareholders for 36.21% of their stake at Rs 370 per share. If the offer is successful, ACIL, owned majority by Holcim, will have full control over ACC.

Hope that helps. Its more complex, of course, but this should do for now.

KM.

"There's method in my madness" - Hamlet.

Hie KM...

ur knowledge in IB n MnA is commendable. particularly the lucidity with which the Holcim-ACC web has been untwined n put forth by u! :bigups:

okies.... well.... had certain doubts reg the same deal.

why did Holcim take the ACIL route to acquire control over ACC? cudnt it have done direct purchase of ACC stake from ACIL n open markets??! coz out here ..... theres a lot of waste on time n resources... ACIL coming out with new lot of shares ... the SEBI taking its own sweet time for approval of the same .... etc?

BTW... wats the company profile of ACIL? just a Investment comapny with a Gujarat Ambuja support... like Pilani investments (if i remem the name corrrectly ) which has a stake in majority of the Birla Group companies.. n now under the caretaking of infamous R.S.Lodha! ... guess the battle betwen Lodha n Birlas is to acquire comtrol of this firm!

[kabmilega]

reachmonil, good question...let me explain

Lets say you acquire 20% in Pagalguy.com ltd with the remaining 80% being held by all the junta who post here. Then, as per Indian regulation, you would have to make a 20% Open offer to the remaining 80% shareholders. lets say that the price you have quoted is a little on the lower side, so the junta think they are better of staying invested into the company than tendering their shares to you...so you end up with only 12% of the proposed Tender offer(i.e. 12% tender their shares)...then you end up with a shareholding of 32% after the Tender Offer closes.

Now, for every 5% you buy in PG.com Ltd, you'll again have to make a 20% offer until you reach 75%, after which you will have to do, what in M&A terminology is called a 'squeeze out' i.e. buy the remaining 25% and delist the shares.

Hope that helps....(BTW Delisting is done throught the Reverse Book Building Process....I'll come to that later)


why did Holcim take the ACIL route to acquire control over ACC? cudnt it have done direct purchase of ACC stake from ACIL n open markets??! coz out here ..... theres a lot of waste on time n resources... ACIL coming out with new lot of shares ... the SEBI taking its own sweet time for approval of the same .... etc?

Holcim wanted a foothold in both the top cement companies in india i.e Gujarat Ambuja and ACC, and the best way to do this was by acquiring majority stake in ACIL. ACIL is a sort of Investment company, you're right and in this case it held shares in the right co. ACC.

KM.

[goelrinku]

thanks kabmilega
u know a lot buddy...keep up the good work

Originally Posted by kabmilega

reachmonil, good question...let me explain


Lets say you acquire 20% in Pagalguy.com ltd with the remaining 80% being held by all the junta who post here. Then, as per Indian regulation, you would have to make a 20% Open offer to the remaining 80% shareholders. lets say that the price you have quoted is a little on the lower side, so the junta think they are better of staying invested into the company than tendering their shares to you...so you end up with only 12% of the proposed Tender offer(i.e. 12% tender their shares)...then you end up with a shareholding of 32% after the Tender Offer closes.

Now, for every 5% you buy in PG.com Ltd, you'll again have to make a 20% offer until you reach 75%, after which you will have to do, what in M&A terminology is called a 'squeeze out' i.e. buy the remaining 25% and delist the shares.

Hope that helps....(BTW Delisting is done throught the Reverse Book Building Process....I'll come to that later)


why did Holcim take the ACIL route to acquire control over ACC? cudnt it have done direct purchase of ACC stake from ACIL n open markets??! coz out here ..... theres a lot of waste on time n resources... ACIL coming out with new lot of shares ... the SEBI taking its own sweet time for approval of the same .... etc?

Holcim wanted a foothold in both the top cement companies in india i.e Gujarat Ambuja and ACC, and the best way to do this was by acquiring majority stake in ACIL. ACIL is a sort of Investment company, you're right and in this case it held shares in the right co. ACC.

KM.

[reachmonil]

Originally Posted by kabmilega

Then, as per Indian regulation, you would have to make a 20% Open offer to the remaining 80% shareholders.

Now, for every 5% you buy in PG.com Ltd, you'll again have to make a 20% offer until you reach 75%,

KM.

okies... ! gotch it!!

also... now when u say... they have to make 20@ offer... if the junta is ready to shell out 30% ... then!!? can they but 30% ... or only 20% buy offer at a time!?

also.... when u say... for every 5% increase in stake... they have to come out with a 20% offer ... so is there a minimum time gap between the 2 offers as laid down by SEBI / SAST !?!

[rohit_anand]

hi guys

i am uploading a few files which will be of interest to anyone with an inclination towards i banking.

The first file has some general gyaan and IB and is rather extensive and i promise it will satisfy your thirst

The second file has profiles of the famous i banks , a lil bit of their history and about a day in the life of an i banker

enjoy!

[PvDdicted]

look up the book "monkey business" on amazon ....that shd be everyone IB wannabe's laughter bible...

[monuguru]

Originally Posted by ValtoRulez

Hi Everyone,

Just some general gyan on I-banking..

Generally, the breakdown of an investment bank includes the following areas:



Corporate Finance



The bread and butter of a traditional investment bank, corporate finance generally performs two different functions: 1) Mergers and acquisitions advisory and 2) Underwriting (Equity Capital Markets). On the mergers and acquisitions (M&A) advising side of corporate finance, bankers assist in negotiating and structuring a merger between two companies. If, for example, a company wants to buy another firm, then an investment bank will help finalize the purchase price, structure the deal, and generally ensure a smooth transaction. The underwriting function within corporate finance involves shepherding the process of raising capital for a company. In the investment banking world, capital can be raised by selling either stocks or bonds to investors.
Investment banks



Anvestment banks typically sell public securities (as opposed private loan agreements).

Sir this is already there is the pdf posted on the thread which i mentioned earlier... please dont increase unecessary traffic...

Regards
Mohit

[kabmilega]

Originally Posted by reachmonil

okies... ! gotch it!!

also... now when u say... they have to make 20@ offer... if the junta is ready to shell out 30% ... then!!? can they but 30% ... or only 20% buy offer at a time!?


also.... when u say... for every 5% increase in stake... they have to come out with a 20% offer ... so is there a minimum time gap between the 2 offers as laid down by SEBI / SAST !?!

In case the Tender Offer is over subscribed (i.e. >20% tender their shares), as was the case in the recent Tender Offer of United Breweries by Scottish and Newcastle Plc, then the tendered shares will be pro rated so as to make sure that only 20% is allowed to be acquired.

No, there is no time gap...but ideally you would like to consolidate your position after the whole process and then go to your I-Banker again, when you feel the need for better control or when you have more cash.

Lets come to some tactics used by both the parties now:

These are some of the Tactics of the Acquirer and Target in an M&A:

Acquirer

Creeping Purchase
Block Purchase
Greenmail
Lock up
Proxy Fight
Stock Lock up
Asset Lock up


Target (more interesting in a Hostile Takeover)

Poison Pill(Back end and Flip Over)
ESOP
Pac Man
Recapitalisation
Repurchase
Scorched earth
Self tender
White Knight


KM

'There's a tide in the affairs of men...' - Julius Caesar.