FİNANSAL PİYASALAR VE KURUMLAR - Deneme Sınavı - 6

The main business of investment banking is raising debt and equity financing for corporations or governments. This involves originating the securities, underwriting them, and then placing them with investors. When a corporation has an intention to borrow or raise funds, it may decide to issue long-term debt or equity instruments.

A syndicate is a group of investment banking firms, each of which buys a portion of the security issue.

An IPO is a common stock offering issued by corporations that had not previously issued common stock to the public

Target corporations may hire investment bankers to help avoid undesired takeover attempts.

Due diligence is checking the validity of all the important information the corporation provided for the potential buyers. The potential buyers want to make sure that if a corporation is purchased, they get what they are promised.

Valuation, strategy, and tactics are the key aspects of the advisory services offered by an investment-banking firm.

This difference is called the gross spread, or the underwriter discount.

The buyers of private placements must be large enough to purchase large amounts of securities at once. This means that the usual buyers are mutual funds, commercial banks, pension funds, and insurance companies. (Mishkin & Eakins, 2018, pp. 575-576).

Issues of securities may also be undersubscribed. That means the sales agents have not been able to generate enough interest in the security among their clients to sell all of the securities by the issue date.

They even assist target corporations in preventing a merger (for example, writing restrictive provisions into a potential target firm’s securities contracts) (Cornett & Saunders, 2014, p. 504).

A potential target changes the voting structure so that shares owned by management have more votes than those owned by others.

After a target corporation is acquired, some of its individual divisions may be sold. This process is referred to as asset stripping (Madura, 2015, pp. 645-646).

The prospectus acts as a marketing tool as the firm tries to persuade investors to apply for shares.

An initial public offering (IPO) or unseasoned offering is a common stock offering issued by corporations that had not previously issued common stock to the public.

A secondary common stock offering or seasoned offering is an offering of common stock that had been issued in the past by the corporation (Fabozzi et al., 2014, pp. 274-275).

There are several different types of arrangement between the investment banking firm and the corporation in security offerings. Sometimes the financing takes the form of a private placement in which the securities are sold to a tiny number of large institutional investors, such as life insurance companies or pension funds, and the investment-banking firm receives a fee. On other occasions, it takes the form of a public offering, where securities are offered to the public. A public offering might be a best efforts or firm commitment practice.

The fee earned from underwriting a security is the difference between the price paid to the issuer and the price at which the investment-banking firm reoffers the security to the public. This difference is called the gross spread, or the underwriter discount. Numerous factors affect the size of the gross spread. Two major factors are the type of security and the size of the offering (Fabozzi et al., 2014, pp. 277-280).

Investment bankers serve both acquirers and target corporations. Acquiring corporations require help in locating attractive corporations to pursue, soliciting stockholders to sell their stocks in a process called a tender offer, and raising the required capital to complete the transaction. Target corporations may hire investment bankers to help avoid undesired takeover attempts (Mishkin & Eakins, 2018, pp. 577-578).

Investment banking firms may suggest steps their customers should take to avoid a merger or takeover. These are known as poison pills. Examples of poison pills are (Hull, 2012, p. 36):