June, 2010

1. An initial public offering (IPO) represents a private company's first

offering of its equity to public investors. This process is generally
considered to be very intensive with many regulatory hurdles to jump
over. While the formal process to produce the IPO is well documented and
as a result is a fairly well-structured process, the transformational process
of which a company changes from a private to a public firm is a much
more difficult process.

A company goes through a three-part IPO transformation process: a pre-

IPO transformation phase, an IPO transaction phase and a post-IPO
transaction phase.

The pre-IPO transformation phase can be considered to be

a restructuring phase where a company starts the groundwork toward
becoming a publicly-traded company. For example, since the main focus of
public companies is to maximize shareholder value, the company should
acquire management that has experience in doing so. Furthermore,
companies should re-examine their organizational processes and policies
and make necessary changes to enhance the company's corporate
governance and transparency. Most importantly, the company needs to
develop an effective growth and business strategy that can persuade
potential investors the company is profitable and can become even more
profitable. On average, this phase usually takes around two years to
complete.

The IPO transaction phase usually takes place right before the shares are
sold and involves achieving goals that would enhance the optimal
initial valuation of the firm. The key issue with this step is to maximize
investor confidence and credibility to ensure that the issue will be
successful. For example, companies can choose to have reputable
accounting and law firms handle the formal paperwork associated with the
filing. The intent of these actions is to prove to potential investors that the
company is willing to spend a little extra in order to have the IPO handled
promptly and correctly.

The post-IPO transaction phase involves the execution of the promises and
business strategies the company committed to in the preceding stages.
The companies should not strive to meet expectations, but rather, beat
their expectations. Companies that frequently beat earnings
estimates or guidance are usually financially rewarded for their efforts.
This phase is typically a very long phase, because this is the point in time
where companies have to go and prove to the market that they are a
strong performer that will last.
3. What is a 'Buyout'

A buyout is the purchase of a company's shares in which the acquiring

party gains controlling interest of the targeted firm. A leveraged
buyout (LBO) is accomplished by borrowed money or by issuing more
stock. Buyout strategies are often seen as a fast way for a company to
grow because it allows the acquiring firm to align itself with other
companies that have a competitive advantage.

Buyout Process
A complete buyout typically takes three to six months. The purchaser
examines the target companys balance sheet, income statement and
statement of cash flows, and conducts a financial analysis on any
subsidiaries or divisions seen as valuable.

After completing its research, valuation and analysis of a target company,

the purchaser and target begin discussing a buyout. The purchaser then
makes an offer of cash and debt to the board of directors (BOD) of the
target company.

The board either recommends the shareholders sell the buyer their shares
or discourages the shareholders from doing so. Although company
managers and directors do not always welcome buyout offers, the
shareholders ultimately decide whether to sell the business. Therefore,
buyouts may be friendly or hostile. Either way, the buyer typically pays a
premium for gaining controlling interest in a company.

After completing the buyout process, the purchaser implements its

strategy for restructuring and improving the company. The purchaser may
sell divisions of the business, merge the business with another company
for increased profitability, or improve operations and take the business
public or private.

Leveraged Buyout

The company performing the LBO may provide a small amount of the
financing, typically 10%, and finance the rest through debt. The return
generated on the acquisition is expected to be more than the interest paid
on the debt. Therefore, high returns may be realized while risking a small
amount of capital.

The target company's assets are typically provided as collateral for the
debt. The buyout firm may sell parts of the target company or use its
future cash flows to pay off the debt and exit with a profit.

4.

Symbo
Rating Definition
ls
Instruments with this rating are considered to have the highest
CARE
degree of safety regarding timely servicing of financial obligations.
AAA
Such instruments carry lowest credit risk.
Instruments with this rating are considered to have high degree of
CARE
safety regarding timely servicing of financial obligations. Such
AA
instruments carry very low credit risk.
Instruments with this rating are considered to have adequate
CARE
degree of safety regarding timely servicing of financial obligations.
A
Such instruments carry low credit risk.
 Instruments with this rating are considered to have moderate
CARE
degree of safety regarding timely servicing of financial obligations.
BBB
Such instruments carry moderate credit risk.
CARE Instruments with this rating are considered to have moderate risk
BB of default regarding timely servicing of financial obligations.
CARE Instruments with this rating are considered to have high risk of
B default regarding timely servicing of financial obligations.
CARE Instruments with this rating are considered to have very high risk
C of default regarding timely servicing of financial obligations.
CARE Instruments with this rating are in default or are expected to be in
D default soon

5.
Definition - What does Asset Sale mean?

An asset sale is completed only when the assets (as opposed to the
common shares) of a company are acquired by a buyer. The buyer may
incorporate a new company or use an existing company to acquire
selected assets, along with management and contracts. This means the
seller that sold the assets retains ownership of the company, and must
pay all of the existing liabilities and debts before taking the net cash
proceeds.

An asset sale carries much less risk for a a buyer since any liabilities
(disclosed or undisclosed) as well as any contingent expenses (e.g.
pending litigation or tax reassessments) stay back with the selling
company. The due diligence can then focus on vetting the fair market
value of the assets being acquired, as well as the quality of the contracts
and employees being transferred over.

Lay-off - Suspension or termination of employment (with or without notice)

by the employer or management. Layoffs are not caused by any fault of
the employees but by reasons such as lack of work, cash, or material.
Permanent layoff is called redundancy.

9. Toe-hold- A purchase of less than 5% of a target company's

outstanding stock made by an acquiring company. A toehold purchase of
just under 5%, while not a significant stake in a firm, allows the
shareholders a "toe-holds" grip on the company and its decision making.
In the instance of a shareholder vote, toehold shareholders hold a
significant place in such votes.
What is a 'Dutch Auction'
A Dutch auction is a public offering auction structure in which the price of the offering is
set after taking in all bids and determining the highest price at which the total offering
can be sold. In this type of auction, investors place a bid for the amount they are willing
to buy in terms of quantity and price.
Free Rider Problem- When a bidder makes an offer for a firm, the target
shareholders can benefit by keeping their shares and letting other
shareholders sell at a low price. However, because all shareholders have
the incentive to keep their shares, no one will sell. This scenario is known
as the free rider problem. To overcome this problem, bidders can acquire a
toehold in the target, attempt a lever-aged buyout, or, in the case when
the acquirer is a corporation, offer a freezeout merger.

10. Market for corporate control

Market for corporate control, sometimes called external corporate control, usually comes into
play when a firms internal governance (board of directors) fails. It often refers to a takeover
market where underperforming or undervalued firms become attractive takeover targets by
potential acquirers. When firms perform poorly it often reflects poor internal governance and
therefore external governance control will kick in. Potential acquirers might buy up a large
amount of a target firms equity in order to take control of the board and subsequently replace the
top management team because poor performance often reflects poor management. The aim of a
takeover is to revitalise a poorly run company and achieve higher profitability after restructuring.
Potential acquirers believe that they can manage the target firm more effectively than the current
set of the top management team. The threat of takeover can serve as a last governance
mechanism by aligning the interests and goals between executives and shareholders and thus
put additional pressure on managers to perform more efficiently.

To oppose hostile or unfriendly takeover, executives of the target firm might implement different
defense tactics - such as poison pills (see below) or asset restructuring - to safeguard their own
employment and wealth. For instance, asset restructuring refers to executives strategic action of
changing the firms business portfolio through sell-offs or spin-offs in order to make the firm less
attractive as a takeover target. To facilitate the takeover deal, acquiring firms sometimes offer
selective executives of the target firm a lump sum of cash, stock options or other benefits (for
example a golden parachute) as incentives for these executives to terminate their employment
at the target firm. Although external governance control can be a disciplinary method for
ineffectual top management, it does not always work because takeover market may not be
active, and in several countries takeover activities are highly restricted and regulated by the local
government agencies.

May, 2012
1 SEBI guidelines regarding substantial acquisition of shares
.
The SEBI (substantial acquisition of shares and takeovers) regulations, 1997 has
defined substantial quantity of shares or voting rights separately for two different
purposes:

An acquirer who holds more than 15 per cent shares or voting rights of target
company shall, within 21 days from the financial year ending March 31, as well as the
record date fixed for the Purpose of dividend declaration, disclose his aggregate
shareholding to the target company. The target company is, in turn, required to
inform all stock exchanges where the shares of target company are listed, within 30
days from the financial year ending March 31 as well as the record date fixed for the
 purpose of dividend declaration.

For the purpose of making an open offer by acquirer: An acquirer who intends to
acquire shares which, alongwith his existing shareholding would entitle him to more
than 15 per cent voting rights, can acquire such additional shares only after making a
public announcement (PA) to acquire at least additional 20 per cent of the voting
capital of target company from the shareholders through an open offer.

Creeping limit of 5 per cent: An acquirer with 15 per cent or more, but less than 75
per cent of shares/voting rights of a target company, can consolidate his holding up
to 5 per cent of the voting rights in any period of 12 months. However, any additional
acquisition over and above 5 per cent can be made only after making a public
announcement to acquire at least 20 per cent shares of the target company from the
shareholders through an open offer.

Consolidation of holding: An acquirer with 75 per cent shares/voting rights of target

company, can acquire further shares or voting rights only after making a public
announcement, specifying the number of shares to be acquired through open offer
from the target company's shareholders.

3. What is a 'Market Maker'

A market maker is a broker-dealer firm that assumes the risk of holding a
certain number of shares of a particular security in order to facilitate the
trading of that security. Each market maker competes for customer order flow
by displaying buy and sell quotations for a guaranteed number of shares, and
once an order is received from a buyer, the market maker
immediately sells from its own inventory or seeks an offsetting order.
The Nasdaq is the prime example of an operation of market makers, given
that there are more than 500 member firms that act as Nasdaq market
makers, keeping the financial markets running efficiently.