INVESTMENT BANKING FIRMS GOING PUBLIC Right offering- new shares are sold to existing stockholder.

. Private placement- the firm sells new securities directly to an investor or a group of investors. Public offering- in which it offers its shares for the sale to the general public. Initial Public Offering (IPO) The first public sale of a firms stock. Prospectus a portfolio of a security registration statement that describes the key aspects of the issuer, and its managements and financial position. Red herring a preliminary prospectus made available to prospective investors during the waiting period between the registration statements filling with the SEC and its approval. Investment Banker Financial intermediary that specializes in selling new security issues and advising firms with regard to major financial transactions. Underwriting The role of the investment banker in bearing the risk of reselling, at a profit, the securities purchased from an issuing corporation at an agreedon price. Underwriting syndicate A group formed by an investment banker to share the financial risk associated with underwriting new securities. Selling group A large number of brokerage firms that join the originating investment banker(s); each accepts responsibility for selling a certain portion of a new security issue on a commission basis. Trading 1. Position Trading- involves purchases of large blocks of securities on the expectation of a favorable price move. 2. Pure Arbitrage- entails buying an asset in one price and selling it immediately in another market at a higher price. 3. Risk Arbitrage- involves buying securities in anticipation of some information release- such as a merger or takeover announcement on a Federal Reserve interest rate announcement. 4. Program Trading- a type of pure arbitrage trading in that it is often associated with seeking to profit from differences between the

cash market price and the futures market price of a particular instrument. 5. Stock Brokerage- involves the trading of securities on behalf of individuals who want to transact in the money or capital markets. 6. Electronic Brokerage- offered by major brokers, involves direct access, via the Internet, to the trading floor therefore bypassing traditional brokers. Private placement A securities issue placed with one or a few large institutional investors. Cash Management Accounts Money market mutual fund sold by investment banks that offer check-writing privileges. Venture capital A professionally managed pool of money used to finance to finance new and often high-risk firms. Institutional Venture Capital Firms Business entities whose sole purpose is to find and fund the most promising new firms. Angel Venture Capitalist (angel) Wealthy individuals who make equity investments. Mergers and acquisition Merger the combination of two or more firms, in which the resulting firm maintains the identity of one of the firms, usually the larger. Consolidation the combination of two or more firms to form a completely new corporation. Holding Company- A corporation that has voting control of one or more other corporations. Subsidiaries the companies controlled by a holding company. Acquiring company the firm in a merger transaction THAT attempts to acquire another firm. Target company the firm in a merger transaction that the acquiring company is pursuing. Friendly Merger Vs Hostile Merger Friendly Merger a merger transaction endorsed by the target firms management approved by its stockholders, and easily consummated. Hostile Merger a merger transaction that the target firms management does not support, the acquiring company to

try to gain control of the firm buying shares in the marketplace. Strategic merger vs financial merger Strategic merger a merger transaction undertaken to achieve economist of scale Financial merger a merger transaction undertaken with the goal of restructuring the acquired company to improve its cash flow and unlock its hidden value.

Type of merger Horizontal merger- a merger of two firms in the same line of business. Vertical merger- a merger in which a firm acquires a supplier or a customers. Congeneric merger- a merger in which one of the firm acquires another firm that is in the same general industry but neither in the same line of business nor a supplier or customer. Conglomerate merger- a merger combining firms in unrelated businesses.

THE SELLING PROCESS FOR A LARGE SECURITIES ISSUE