WEEK 3 - Issuing securities: auctions, underwriting, bookbuilding; and mergers and acquisitions Flashcards

1
Q

What is the UK primary market regulator?

A

FCA

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2
Q

What is the US primary market regulator?

A

Securities and Exchange Commission

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3
Q

How are the UK primary market regulations set?

A

Largely set by European directives, such as the “prospectus directive” and the “transparency
directive”.

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4
Q

What is the goal of the FCA?

A

To ensure that investors have full

information about newly issued and traded securities

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5
Q

What is the equivalent primary market regulative law in the US?

A

‘The truth in securities’ act

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6
Q

What are the objectives of the Truth in securities act?

A

require that investors receive financial and other significant information concerning securities being offered for public sale; and

prohibit deceit, misrepresentations, and other fraud in the sale of securities.

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7
Q

How are Government Bonds issued?

A

Through auction by the Debt Management Agency (UK)

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8
Q

How are the Gilts (UK Govt bonds) split up?

A

index linked (IL) from conventional gilts (CV)

Conventional Gilts split to:

  • Short maturity
  • Mid maturity
  • Long maturity
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9
Q

What is a conventional Gilt?

A

Long term UK government bond, offering fixed

payments of “coupon” every six months and the repayment of the original principal at the maturity date.

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10
Q

What is a Index Linked Gilt?

A

Payments are linked to a price index, increasing along with inflation.

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11
Q

How are Corporate Bonds issued?

A

Via an underwriter or bookrunner

an investment bank who (working with other
banks) is responsible for producing the required prospectus and marketing the bond issue (through a so called roadshow).

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12
Q

How are IPOs issued?

A

Underwriting via a lead bookrunner

whose job is to market the issue and use their contacts to establish and indicative market price.

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13
Q

What happened during the Twitter IPO?

A
  • never made a profit at the time of the IPO, (spent more money on expanding the business than earned)
  • sold a small proportion of shares, (a little over 10%)
  • The relatively small share issue and the great excitement over the IPO raised IPO price of $45 per share, more than twice initial valuation range of $20-$25.
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14
Q

How do investment banks earn money via IPOs?

A

Earn revenues upwards of 5% of the value of the flotation

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15
Q

Whats the problem in establishing market price for IPOs?

A

Best explained by Keynes in the ‘General Theory’

The price alters based on what people think another person will view the price of the stock at.

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16
Q

What are Mergers?

A

Two companies joining together, a new share

replacing both existing shares

17
Q

What are Acquisitions?

A

Means one company, usually a larger company, acquiring ownership and taking control of another company, usually a smaller company.

18
Q

What is the rationale behind M&A?

A

generating ‘synergies’ that make the combined firm worth more than the sum

19
Q

What is the process in completing a Merger?

A

1) Preliminary Examination
2) Announcement
3) Outline Agreement
4) Due Diligence
5) Completion

20
Q

What is the process in completing an Acquisition?

A

1) Preliminary Examination
2) Announcement
3) Due Diligence
4) Offer
5) Completion

21
Q

What are the rules and regulations behind an acquisition?

A
  • Any potential acquirer must announce their intentions, when reaching a threshold of total issued shares (in London 30%)
  • Possible for 2 companies for vie for takeover causing a bidding war
  • Investments banks earn fees at each stage of M&A