Initial public offering

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Posted by motoman 03/25/2009 @ 16:07

Tags : initial public offering, finance

News headlines
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OpenTable IPO to price May 20, trade next day-source - Reuters
NEW YORK, May 13 (Reuters) - OpenTable Inc, an online reservation system used in 10000 restaurants in the United States, will price its planned initial public offering on May 20, and begin trading the following day, a source close to the deal said...
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First Mercury Financial Corporation Declares First Post-IPO ... - PR Newswire (press release)
This dividend represents the first dividend declared by the Company since its initial public offering in 2006. "We are pleased to announce this dividend, which is a signal of the board's confidence in our business model and the strength of our balance...

Initial public offering

Initial public offering (IPO), also referred to simply as a "public offering" or "flotation," is when a company issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.

In an IPO the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market.

An IPO can be a risky investment. For the individual investor, it is tough to predict what the stock or shares will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value.

When a company lists its shares on a public exchange, it will almost invariably look to issue additional new shares in order to raise extra capital at the same time. The money paid by investors for the newly-issued shares goes directly to the company (in contrast to a later trade of shares on the exchange, where the money passes between investors). An IPO, therefore, allows a company to tap a wide pool of stock market investors to provide it with large volumes of capital for future growth. The company is never required to repay the capital, but instead the new shareholders have a right to future profits distributed by the company and the right to a capital distribution in case of a dissolution.

The existing shareholders will see their shareholdings diluted as a proportion of the company's shares. However, they hope that the capital investment will make their shareholdings more valuable in absolute terms.

In addition, once a company is listed, it will be able to issue further shares via a rights issue, thereby again providing itself with capital for expansion without incurring any debt. This regular ability to raise large amounts of capital from the general market, rather than having to seek and negotiate with individual investors, is a key incentive for many companies seeking to list.

IPOs generally involve one or more investment banks as "underwriters." The company offering its shares, called the "issuer," enters a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell these shares.

A large IPO is usually underwritten by a "syndicate" of investment banks led by one or more major investment banks (lead underwriter). Upon selling the shares, the underwriters keep a commission based on a percentage of the value of the shares sold. Usually, the lead underwriters, i.e. the underwriters selling the largest proportions of the IPO, take the highest commissions—up to 8% in some cases.

Multinational IPOs may have as many as three syndicates to deal with differing legal requirements in both the issuer's domestic market and other regions. For example, an issuer based in the E.U. may be represented by the main selling syndicate in its domestic market, Europe, in addition to separate syndicates or selling groups for US/Canada and for Asia. Usually, the lead underwriter in the main selling group is also the lead bank in the other selling groups.

Because of the wide array of legal requirements, IPOs typically involve one or more law firms with major practices in securities law, such as the Magic Circle firms of London and the white shoe firms of New York City.

Usually, the offering will include the issuance of new shares, intended to raise new capital, as well the secondary sale of existing shares. However, certain regulatory restrictions and restrictions imposed by the lead underwriter are often placed on the sale of existing shares.

Public offerings are primarily sold to institutional investors, but some shares are also allocated to the underwriters' retail investors. A broker selling shares of a public offering to his clients is paid through a sales credit instead of a commission. The client pays no commission to purchase the shares of a public offering; the purchase price simply includes the built-in sales credit.

The issuer usually allows the underwriters an option to increase the size of the offering by up to 15% under certain circumstance known as the greenshoe or overallotment option.

The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded.

In the United States, during the dot-com bubble of the late 1990s, many venture capital driven companies were started, and seeking to cash in on the bull market, quickly offered IPOs. Usually, stock price spiraled upwards as soon as a company went public. Investors sought to get in at the ground-level of the next potential Microsoft and Netscape.

Initial founders could often become overnight millionaires, and due to generous stock options, employees could make a great deal of money as well. The majority of IPOs could be found on the Nasdaq stock exchange, which lists companies related to computer and information technology. However, in spite of the large amounts of financial resources made available to relatively young and untested firms (often in multiple rounds of financing), the vast majority of them rapidly entered cash crisis. Crisis was particularly likely in the case of firms where the founding team liquidated a substantial portion of their stake in the firm at or soon after the IPO (Mudambi and Treichel, 2005).

This phenomenon was not limited to the United States. In Japan, for example, a similar situation occurred. Some companies were operated in a similar way in that their only goal was to have an IPO. Some stock exchanges were set up for those companies, such as Osaka Securities Exchange.

Perhaps the clearest bubbles in the history of hot IPO markets were in 1929, when closed-end fund IPOs sold at enormous premiums to net asset value, and in 1989, when closed-end country fund IPOs sold at enormous premiums to net asset value. What makes these bubbles so clear is the ability to compare market prices for shares in the closed-end funds to the value of the shares in the funds' portfolios. When market prices are multiples of the underlying value, bubbles are likely to be occurring.

A venture capitalist named Bill Hambrecht has attempted to devise a method that can reduce the inefficient process. He devised a way to issue shares through a Dutch auction as an attempt to minimize the extreme underpricing that underwriters were nurturing. Underwriters, however, have not taken to this strategy very well. Though not the first company to use Dutch auction, Google is one established company that went public through the use of auction. Google's share price rose 17% in its first day of trading despite the auction method. Perception of IPOs can be controversial. For those who view a successful IPO to be one that raises as much money as possible, the IPO was a total failure. For those who view a successful IPO from the kind of investors that eventually gained from the underpricing, the IPO was a complete success. It's important to note that different sets of investors bid in auctions versus the open market—more institutions bid, fewer private individuals bid. Google may be a special case, however, as many individual investors bought the stock based on long-term valuation shortly after it launched its IPO, driving it beyond institutional valuation.

Historically, IPOs both globally and in the United States have been underpriced. The effect of "initial underpricing" an IPO is to generate additional interest in the stock when it first becomes publicly traded. Through flipping, this can lead to significant gains for investors who have been allocated shares of the IPO at the offering price. However, underpricing an IPO results in "money left on the table"—lost capital that could have been raised for the company had the stock been offered at a higher price. One great example of all these factors at play was seen with IPO which helped fuel the IPO mania of the late 90's internet era. Underwritten by Bear Stearns on November 13, 1998 the stock had been priced at $9 per share, and famously jumped 1000% at the opening of trading all the way up to $97, before deflating and closing at $63 after large sell offs from institutions flipping the stock . Although the company did raise about $30 million from the offering it is estimated that with the level of demand for the offering and the volume of trading that took place the company might have left upwards of $200 million on the table.

The danger of overpricing is also an important consideration. If a stock is offered to the public at a higher price than the market will pay, the underwriters may have trouble meeting their commitments to sell shares. Even if they sell all of the issued shares, if the stock falls in value on the first day of trading, it may lose its marketability and hence even more of its value.

Investment banks, therefore, take many factors into consideration when pricing an IPO, and attempt to reach an offering price that is low enough to stimulate interest in the stock, but high enough to raise an adequate amount of capital for the company. The process of determining an optimal price usually involves the underwriters ("syndicate") arranging share purchase commitments from leading institutional investors.

A company that is planning an IPO appoints lead managers to help it decide on an appropriate price at which the shares should be issued. There are two ways in which the price of an IPO can be determined: either the company, with the help of its lead managers, fixes a price or the price is arrived at through the process of book building.

Note: Not all IPOs are eligible for delivery settlement through the DTC system, which would then either require the physical delivery of the stock certificates to the clearing agent bank's custodian, or a delivery versus payment (DVP) arrangement with the selling group brokerage firm . This information is not sufficient.

There are two time windows commonly referred to as "quiet periods" during an IPO's history. The first and the one linked above is the period of time following the filing of the company's S-1 but before SEC staff declare the registration statement effective. During this time, issuers, company insiders, analysts, and other parties are legally restricted in their ability to discuss or promote the upcoming IPO.

The other "quiet period" refers to a period of 40 calendar days following an IPO's first day of public trading. During this time, insiders and any underwriters involved in the IPO, are restricted from issuing any earnings forecasts or research reports for the company. Regulatory changes enacted by the SEC as part of the Global Settlement, enlarged the "quiet period" from 25 days to 40 days on July 9, 2002. When the quiet period is over, generally the lead underwriters will initiate research coverage on the firm. Additionally, the NASD and NYSE have approved a rule mandating a 10-day quiet period after a Secondary Offering and a 15-day quiet period both before and after expiration of a "lock-up agreement" for a securities offering.

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Security (finance)

Vereinigte Ostindische Compagnie bond.jpg

A security is a fungible, negotiable instrument representing financial value. Securities are broadly categorized into debt securities (such as banknotes, bonds and debentures), and equity securities; e.g., common stocks. The company or other entity issuing the security is called the issuer. What specifically qualifies as a security is dependent on the regulatory structure in a country. For example, private investment pools may have some features of securities, but they may not be registered or regulated as such if they meet various restrictions.

Securities may be represented by a certificate or, more typically, by an electronic book entry. Certificates may be bearer, meaning they entitle the holder to rights under the security merely by holding the security, or registered, meaning they entitle the holder to rights only if he or she appears on a security register maintained by the issuer or an intermediary. They include shares of corporate stock or mutual funds, bonds issued by corporations or governmental agencies, stock options or other options, limited partnership units, and various other formal investment instruments that are negotiable and fungible.

Issuers of securities include commercial companies, government agencies, local authorities and international and supranational organizations (such as the World Bank). Debt securities issued by a government (called government bonds or sovereign bonds) generally carry a lower interest rate than corporate debt issued by commercial companies. Interests in an asset—for example, the flow of royalty payments from intellectual property—may also be turned into securities. These repackaged securities resulting from a securitization are usually issued by a company established for the purpose of the repackaging—called a special purpose vehicle (SPV). See "Repackaging" below. SPVs are also used to issue other kinds of securities. SPVs can also be used to guarantee securities, such as covered bonds.

Commercial enterprises have traditionally used securities as a means of raising new capital. Securities may be an attractive option relative to bank loans depending on their pricing and market demand for particular characteristics. Another disadvantage of bank loans as a source of financing is that the bank may seek a measure of protection against default by the borrower via extensive financial covenants. Through securities, capital is provided by investors who purchase the securities upon their initial issuance. In a similar way, the governments may raise capital through the issuance of securities (see government debt).

In recent decades securities have been issued to repackage existing assets. In a traditional securitisation, a financial institution may wish to remove assets from its balance sheet in order to achieve regulatory capital efficiencies or to accelerate its receipt of cash flow from the original assets. Alternatively, an intermediary may wish to make a profit by acquiring financial assets and repackaging them in a way which makes them more attractive to investors.

Investors in securities may be retail, i.e. members of the public investing other than by way of business. The greatest part in terms of volume of investment is wholesale, i.e. by financial institutions acting on their own account, or on behalf of clients. Important institutional investors include investment banks, insurance companies, pension funds and other managed funds.

The traditional economic function of the purchase of securities is investment, with the view to receiving income and/or achieving capital gain. Debt securities generally offer a higher rate of interest than bank deposits, and equities may offer the prospect of capital growth. Equity investment may also offer control of the business of the issuer. Debt holdings may also offer some measure of control to the investor if the company is a fledgling start-up or an old giant undergoing 'restructuring'. In these cases, if interest payments are missed, the creditors may take control of the company and liquidate it to recover some of their investment.

The last decade has seen an enormous growth in the use of securities as collateral. Purchasing securities with borrowed money secured by other securities is called "buying on margin." Where A is owed a debt or other obligation by B, A may require B to deliver property rights in securities to A. These property rights enable A to satisfy its claims in the event that B becomes insolvent. Collateral arrangements are divided into two broad categories, namely security interests and outright collateral transfers. Commonly, commercial banks, investment banks and government agencies are significant collateral takers.

Securities are traditionally divided into debt securities and equities.

Debt securities may be called debentures, bonds, deposits, notes or commercial paper depending on their maturity and certain other characteristics. The holder of a debt security is typically entitled to the payment of principal and interest, together with other contractual rights under the terms of the issue, such as the right to receive certain information. Debt securities are generally issued for a fixed term and redeemable by the issuer at the end of that term. Debt securities may be protected by collateral or may be unsecured, and, if they are unsecured, may be contractually "senior" to other unsecured debt meaning their holders would have a priority in a bankruptcy of the issuer. Debt that is not senior is "subordinated".

Corporate bonds represent the debt of commercial or industrial entities. Debentures have a long maturity, typically at least ten years, whereas notes have a shorter maturity. Commercial paper is a simple form of debt security that essentially represents a post-dated check with a maturity of not more than 270 days.

Money market instruments are short term debt instruments that may have characteristics of deposit accounts, such as certificates of deposit, and certain bills of exchange. They are highly liquid and are sometimes referred to as "near cash". Commercial paper is also often highly liquid.

Euro debt securities are securities issued internationally outside their domestic market in a denomination different from that of the issuer's domicile. They include eurobonds and euronotes. Eurobonds are characteristically underwritten, and not secured, and interest is paid gross. A euronote may take the form of euro-commercial paper (ECP) or euro-certificates of deposit.

Government bonds are medium or long term debt securities issued by sovereign governments or their agencies. Typically they carry a lower rate of interest than corporate bonds, and serve as a source of finance for governments. U.S. federal government bonds are called treasuries. Because of their liquidity and perceived low risk, treasuries are used to manage the money supply in the open market operations of non-US central banks.

Sub-sovereign government bonds, known in the U.S. as municipal bonds, represent the debt of state, provincial, territorial, municipal or other governmental units other than sovereign governments.

Supranational bonds represent the debt of international organizations such as the World Bank, the International Monetary Fund, regional multilateral development banks and others.

An equity security is a share in the capital stock of a company (typically common stock, although preferred equity is also a form of capital stock). The holder of an equity is a shareholder, owning a share, or fractional part of the issuer. Unlike debt securities, which typically require regular payments (interest) to the holder, equity securities are not entitled to any payment. In bankruptcy, they share only in the residual interest of the issuer after all obligations have been paid out to creditors. However, equity generally entitles the holder to a pro rata portion of control of the company, meaning that a holder of a majority of the equity is usually entitled to control the issuer. Equity also enjoys the right to profits and capital gain, whereas holders of debt securities receive only interest and repayment of principal regardless of how well the issuer performs financially. Furthermore, debt securities do not have voting rights outside of bankruptcy. In other words, equity holders are entitled to the "upside" of the business and to control the business.

Hybrid securities combine some of the characteristics of both debt and equity securities.

Preference shares form an intermediate class of security between equities and debt. If the issuer is liquidated, they carry the right to receive interest and/or a return of capital in priority to ordinary shareholders. However, from a legal perspective, they are capital stock and therefore may entitle holders to some degree of control depending on whether they contain voting rights.

Convertibles are bonds or preferred stock which can be converted, at the election of the holder of the convertibles, into the common stock of the issuing company. The convertibility, however, may be forced if the convertible is a callable bond, and the issuer calls the bond. The bondholder has about 1 month to convert it, or the company will call the bond by giving the holder the call price, which may be less than the value of the converted stock. This is referred to as a forced conversion.

Equity warrants are options issued by the company that allow the holder of the warrant to purchase a specific number of shares at a specified price within a specified time. They are often issued together with bonds or existing equities, and are, sometimes, detachable from them and separately tradable. When the holder of the warrant exercises it, he pays the money directly to the company, and the company issues new shares to the holder.

Warrants, like other convertible securities, increases the number of shares outstanding, and are always accounted for in financial reports as fully diluted earnings per share, which assumes that all warrants and convertibles will be exercised.

The public securities markets can be divided into primary and secondary markets. The distinguishing difference between the two markets is that in the primary market, the money for the securities is received by the issuer of those securities from investors, whereas in the secondary market, the money goes from one investor to the other. When a company issues public stock for the first time, this is called an initial public offering (IPO). A company can later issue more new shares, or issue shares that have been previously registered in a shelf registration. These later new issues are also sold in the primary market, but they are not considered to be an IPO. Issuers usually retain investment banks to assist them in administering the IPO, getting SEC (or other regulatory body) approval, and selling the new issue. When the investment bank buys the entire new issue from the issuer at a discount to resell it at a markup, it is called a firm commitment underwriting. However, if the investment bank considers the risk too great for an underwriting, it may only assent to a best effort agreement, where the investment bank will simply do its best to sell the new issue.

In order for the primary market to thrive, there must be a secondary market, or aftermarket, where holders of securities can sell them to other investors for cash, hopefully at a profit. Otherwise, few people would purchase primary issues, and, thus, companies and governments would be unable to raise money for their operations. Organized exchanges constitute the main secondary markets. Many smaller issues and most debt securities trade in the decentralized, dealer-based over-the-counter markets.

In Europe, the principal trade organization for securities dealers is the International Capital Market Association. In the U.S., the principal organization for securities dealers is the Securities Industry and Financial Markets Association, which is the result of the merger of the Securities Industry Association and the Bond Market Association. The Financial Information Services Division of the Software and Information Industry Association (FISD/SIIA) represents a round-table of market data industry firms, referring to them as Consumers, Exchanges, and Vendors.

In the primary markets, securities may be offered to the public in a public offer. Alternatively, they may be offered privately to a limited number of qualified persons in a private placement. Often a combination of the two is used. The distinction between the two is important to securities regulation and company law. Privately placed securities are often not publicly tradable and may only be bought and sold by sophisticated qualified investors. As a result, the secondary market is not as liquid.

Another category, sovereign debt, is generally sold by auction to a specialised class of dealers.

Securities are often listed in a stock exchange, an organized and officially recognized market on which securities can be bought and sold. Issuers may seek listings for their securities in order to attract investors, by ensuring that there is a liquid and regulated market in which investors will be able to buy and sell securities.

Growth in informal electronic trading systems has challenged the traditional business of stock exchanges. Large volumes of securities are also bought and sold "over the counter" (OTC). OTC dealing involves buyers and sellers dealing with each other by telephone or electronically on the basis of prices that are displayed electronically, usually by commercial information vendors such as Reuters and Bloomberg.

There are also eurosecurities, which are securities that are issued outside their domestic market into more than one jurisdiction. They are generally listed on the Luxembourg Stock Exchange or admitted to listing in London. The reasons for listing eurobonds include regulatory and tax considerations, as well as the investment restrictions.

London is the centre of the eurosecurities markets. There was a huge rise in the eurosecurities market in London in the early 1980s. Settlement of trades in eurosecurities is currently effected through two European computerised systems called Euroclear (in Belgium) and Clearstream (formerly Cedelbank) in Luxembourg.

The main market for Eurobonds is the EuroMTS, owned by Borsa Italiana and Euronext. There are ramp up market in Emergent countries, but it is growing slowly.

Securities that are represented by certificates are called certificated securities. They may be bearer or registered.

Bearer securities are completely negotiable and entitle the holder to the rights under the security (e.g. to payment if it is a debt security, and voting if it is an equity security). They are transferred by delivering the instrument from person to person. In some cases, transfer is by endorsement, or signing the back of the instrument, and delivery.

Regulatory and fiscal authorities sometimes regard bearer securities negatively, as they may be used to facilitate the evasion of regulatory restrictions and tax. In the United Kingdom, for example, the issue of bearer securities was heavily restricted firstly by the Exchange Control Act 1947 until 1953. Bearer securities are very rare in the United States because of the negative tax implications they may have to the issuer and holder.

In the case of registered securities, certificates bearing the name of the holder are issued, but these merely represent the securities. A person does not automatically acquire legal ownership by having possession of the certificate. Instead, the issuer (or its appointed agent) maintains a register in which details of the holder of the securities are entered and updated as appropriate. A transfer of registered securities is effected by amending the register.

Modern practice has developed to eliminate both the need for certificates and maintenance of a complete security register by the issuer. There are two general ways this has been accomplished.

In some jurisdictions, such as France, it is possible for issuers of that jurisdiction to maintain a legal record of their securities electronically.

In the United States, the current "official" version of Article 8 of the Uniform Commercial Code permits uncertificated securities. However, the "official" UCC is a mere draft that must be enacted individually by each of the U.S. states. Though all 50 states (as well as the District of Columbia and the U.S. Virgin Islands) have enacted some form of Article 8, many of them still appear to use older versions of Article 8, including some that did not permit uncertificated securities.

In order to facilitate the electronic transfer of interests in securities without dealing with inconsistent versions of Article 8, a system has developed whereby issuers deposit a single global certificate representing all the outstanding securities of a class or series with a universal depository. This depository is called The Depository Trust Company, or DTC. DTC's parent, Depository Trust & Clearing Corporation (DTCC), is a non-profit cooperative owned by approximately thirty of the largest Wall Street players that typically act as brokers or dealers in securities. These thirty banks are called the DTC participants. DTC, through a legal nominee, owns each of the global securities on behalf of all the DTC participants.

All securities traded through DTC are in fact held, in electronic form, on the books of various intermediaries between the ultimate owner, e.g. a retail investor, and the DTC participants. For example, Mr. Smith may hold 100 shares of Coca Cola, Inc. in his brokerage account at local broker Jones & Co. brokers. In turn, Jones & Co. may hold 1000 shares of Coca Cola on behalf of Mr. Smith and nine other customers. These 1000 shares are held by Jones & Co. in an account with Goldman Sachs, a DTC participant, or in an account at another DTC participant. Goldman Sachs in turn may hold millions of Coca Cola shares on its books on behalf of hundreds of brokers similar to Jones & Co. Each day, the DTC participants settle their accounts with the other DTC participants and adjust the number of shares held on their books for the benefit of customers like Jones & Co. Ownership of securities in this fashion is called beneficial ownership. Each intermediary holds on behalf of someone beneath him in the chain. The ultimate owner is called the beneficial owner. This is also referred to as owning in "Street name".

Besides DTC, two other large securities depositories exist, both in Europe: Euroclear and Clearstream.

The terms "divided" and "undivided" relate to the proprietary nature of a security.

Each divided security constitutes a separate asset, which is legally distinct from each other security in the same issue. Pre-electronic bearer securities were divided. Each instrument constitutes the separate covenant of the issuer and is a separate debt.

With undivided securities, the entire issue makes up one single asset, with each of the securities being a fractional part of this undivided whole. Shares in the secondary markets are always undivided. The issuer owes only one set of obligations to shareholders under its memorandum, articles of association and company law. A share represents an undivided fractional part of the issuing company. Registered debt securities also have this undivided nature.

The terms "fungible" and "non-fungible" relate to the way in which securities are held.

If an asset is fungible, this means that when such an asset is lent, or placed with a custodian, it is customary for the borrower or custodian to be obliged at the end of the loan or custody arrangement to return assets equivalent to the original asset, rather than the identical asset. In other words, the redelivery of fungibles is equivalent and not in specie.

Undivided securities are always fungible by logical necessity. Divided securities may or may not be fungible, depending on market practice. The clear trend is towards fungible arrangements.

In the United States, the public offer and sale of securities must be either registered pursuant to a registration statement that is filed with the U.S. Securities and Exchange Commission (SEC) or are offered and sold pursuant to an exemption therefrom. Dealing in securities is heavily regulated by both federal authorities (SEC) and state authorities. In addition the industry is heavily self policed by Self Regulatory Organizations (SROs), such as FINRA (the Financial Industry Regulatory Authority, formerly the National Association of Security Dealers or NASD) or the MSRB.

Due to the difficulty of creating a general definition that covers all securities, Congress attempts to define "securities" exhaustively (and not very precisely) as: "any note, stock, treasury stock, security future, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or in general, any instrument commonly known as a 'security'; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing; but shall not include currency or any note, draft, bill of exchange, or bankers' acceptance which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited." - Section 3a item 10 of the 1934 Act.

With respect to investment schemes that do not fall within the traditional categories of securities listed in the definition of a security (Sec. 2(a)(1) of the 33 act and Sec. 3(a)(10) of the 34 act) the US Courts have developed a broad definition for securities that must then be registered with the SEC. When determining if there a is an "investment contract" that must be registered the courts look for an investment of money, a common enterprise and expectation of profits to come primarily from the efforts of others. See SEC v. W.J. Howey Co. and SEC v. Glenn W. Turner Enterprises, Inc.

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Kohlberg Kravis Roberts


Kohlberg Kravis Roberts & Co (commonly referred to as KKR) is a New York City-based private equity firm that sponsors and manages investment funds, focusing primarily on leveraged buyouts of mature businesses. Since inception, the firm has completed over $400 billion of private equity transactions and was one of the pioneers of the leveraged buyout industry.

The firm was founded in 1976 by Jerome Kohlberg, Jr., and cousins Henry Kravis and George R. Roberts, all of whom had previously worked together at Bear Stearns where they completed some of the earliest leveraged buyout transactions. Since its founding, KKR has completed a number of landmark transactions including the 1989 leveraged buyout of RJR Nabisco, which was the largest buyout in history to that point, as well as the 2007 buyout of TXU, which is currently the largest buyout completed to date. KKR has completed investments in over 160 companies since 1977, completing at least one investment in every year except 1982 and 1990.

KKR is headquartered in New York City with ten additional offices in the US, Europe and Asia.

KKR is operated by its managing partners Henry Kravis and George R. Roberts and a team of approximately 140 investment professionals and 400 total employees, organized into industry focused groups. KKR is headquartered in the Solow Building at 9 West 57th Street in New York City and has offices in San Francisco, Menlo Park, Houston, Washington, DC, London, Paris, Hong Kong, Tokyo, Beijing and Sydney.

The professionals in each of KKR's industry-focused groups are expected to have developed a proficiency in the respective industry.

KKR Financial (NYSE: KFN) is a real estate investment trust (REIT) and specialty finance company that invests in residential and commercial mortgage loans and mortgage-backed securities as well as corporate loans and debt securities, asset-backed securities and equity securities. KFN was founded in 2004 raising $795 million in a private placement and raised $849 million in a June 2005 initial public offering, increasing the size of the offering from an original $600 million target. KKR had initially considered structuring KFN as a business development company like Apollo Management's Apollo Investment Corporation but chose to pursue the REIT structure to capitalize on the strength in REIT valuations at the time.

KFN was an early casualty of the subprime mortgage crisis and in September 2007, Henry Kravis and George Roberts injected $270 million into the company. On February 20, 2008, KFN was once again forced to delay the repayment of billions of dollars of commercial paper, and began a new round of talks with creditors. In April, KFN sold a controlling interest in a real estate subsidiary to an investment firm to raise cash and entered an agreement with the noteholders of certain secured commercial paper issued by two asset-backed entities. Following the transaction, KFN converted from a REIT to a limited liability company. KKR Financial is a debt investment vehicle and does not invest in KKR's private equity transactions.

KKR Private Equity Investors (Euronext: KPE) is a publicly traded private equity fund that invests as a fund of funds in KKR private equity funds. KPE also co-invests in transactions alongside KKR's private equity funds. KPE was founded in 2006. In May 2006, KKR raised $5 billion in an initial public offering for a KPE to serve as a new permanent investment vehicle listing it on the Euronext exchange in Amsterdam. KKR raised three times more than it expected, as many of the investors in KPE were hedge funds seeking exposure to private equity but could not make long term commitments to private equity funds. Because private equity had been booming in preceding years, investing in a KKR fund was attractive to investors.

However, KPE's first-day performance was lackluster, trading down 1.7% and trading volume was limited. Initially, a handful of other private equity firms and hedge funds had planned to follow KKR's lead but shelved those plans when KPE's performance continued to falter after its IPO. KPE's stock declined from an IPO price of €25 per share to €18.16 (a 27% decline) at the end of 2007 and a low of €11.45 (a 54.2% decline) per share in Q1 2008.

KPE disclosed in May 2008 that it had completed approximately $300 million of secondary sales of selected limited partnership interests in, and undrawn commitments to, certain KKR-managed funds in order to generate liquidity and repay borrowings.

Running the corporate finance department for Bear Stearns in the 1960s and 1970s, Jerome Kohlberg and later with protégés Henry Kravis and George Roberts completed a series of what they described as "bootstrap" investments beginning in 1964-65. They targeted family-owned businesses, many of which had been founded in the years following World War II which by the 1960s and 1970s were facing succession issues. Many of these companies lacked a viable or attractive exit for their founders as they were too small to be taken public and the founders were reluctant to sell out to competitors and so a sale to a financial buyer could prove attractive.

Their acquisition of Orkin Exterminating Company in 1964 is among the first significant leveraged buyout transactions. In the following years the three Bear Stearns bankers would complete a series of buyouts including Stern Metals (1965), Incom (a division of Rockwood International, 1971), Cobblers Industries (1971), and Boren Clay (1973) as well as Thompson Wire, Eagle Motors and Barrows through their investment in Stern Metals. Although they had a number of highly successful investments, the $27 million investment in Cobblers ended in bankruptcy.

By 1976, tensions had built up between Bear Stearns and Kohlberg, Kravis and Roberts leading to their departure and the formation of Kohlberg Kravis Roberts & Co. in that year. Most notably, Bear Stearns executive Cy Lewis had rejected repeated proposals to form a dedicated investment fund within Bear Stearns and Lewis took exception to the amount of time spent on outside activities.

The new KKR completed its first buyout, that of manufacturer A.J. Industries, in 1977. KKR raised capital raised from a small group of investors including the Hillman Family and First Chicago Bank. By 1978, with the revision of the ERISA regulations, the nascent KKR was successful in raising its first institutional fund with over $30 million of investor commitments. In 1981, KKR expanded its investor base significantly when the Oregon State Treasury's public pension fund invested in KKR's acquisition of retailer Fred Meyer, Inc. Oregon remains an active investor in KKR funds more than 25 years later.

After the 1987 resignation of Jerome Kohlberg at age 61 (he later founded his own private equity firm, Kohlberg & Co.), Henry Kravis succeeded him as senior partner. Under Kravis and Roberts, the firm was responsible for the 1988 leveraged buyout of RJR Nabisco. RJR Nabisco proved to be not only the largest buyout in history to that time, at $25 billion ($31.1 billion, including assumed debt) as well as a high water mark and sign of the end of the 1980s buyout boom. The RJR Nabisco, which would remain the largest buyout for the next 17 years, was chronicled in the book, Barbarians at the Gate: The Fall of RJR Nabisco, and later made into a television movie starring James Garner.

In 1988, F. Ross Johnson was the President and CEO of RJR Nabisco, formed in 1985 by the merger of Nabisco Brands and R.J. Reynolds Tobacco Company, a leading producer of food products (Shredded Wheat, Oreo cookies, Ritz crackers, Planters peanuts, Life Savers and Del Monte fruits and vegetables) as well as Winston, Camel and Salem cigarettes. In October 1988, Johnson proposed a $17 billion ($75 per share) management buyout of the company with the financial backing of investment bank Shearson Lehman Hutton and its parent company, American Express.

Days later, Kravis, who had originally suggested the idea of the buyout to Johnson, presented a new bid for $20.3 billion ($90 per share) financed with an aggressive debt package. KKR also had the support of significant equity co-investments from leading pension funds and other institutional investors. Among KKR's investors included, the Coca-Cola, Georgia-Pacific and United Technologies corporate pension funds as well as the Massachusetts Institute of Technology endowment, the Harvard University endowment and the New York State Common Retirement Fund However, KKR also faced criticism from existing investors over the firm's use of hostile tactics in the buyout of RJR.

KKR proposed to provide a joint offer with Johnson and Shearson but was rebuffed and Johnson attempted to stonewall KKR's access to financial information from RJR. Rival private equity firm, Forstmann Little & Co. was invited into the process by Shearson but attempted to provide a bid for RJR with a consortium of Goldman Sachs Capital Partners, Procter & Gamble, Ralston Purina and Castle & Cooke. Ultimately the Forstmann consortium came apart and did not provide a final bid for RJR. Many of the major banking players of the day, including Shearson Lehman Hutton, Drexel Burnham Lambert, Morgan Stanley, Goldman Sachs, Salomon Brothers and Merrill Lynch were actively involved in advising and financing the parties.

In November 1988, RJR set guidelines for a final bid submission at the end of the month. The management and Shearson group submitted a final bid of $112, a figure they felt certain would enable them to outflank any response by Kravis and KKR. KKR's final bid of $109, while a lower dollar figure, was ultimately accepted by the board of directors of RJR Nabisco. KKR's offer was guaranteed, whereas the management offer lacked a "reset", meaning that the final share price might have been lower than their stated $112 per share. Additionally, many in RJR's board of directors had grown concerned at recent disclosures of Ross Johnson' unprecedented golden parachute deal. TIME magazine featured Ross Johnson on the cover of their December 1988 issue along with the headline, "A Game of Greed: This man could pocket $100 million from the largest corporate takeover in history. Has the buyout craze gone too far?". KKR's offer was welcomed by the board, and, to some observers, it appeared that their elevation of the reset issue as a deal-breaker in KKR's favor was little more than an excuse to reject Ross Johnson's higher payout of $112 per share. F. Ross Johnson received $53 million from the buyout. KKR collected a $75 million fee in the RJR takeover.

At $31.1 billion of transaction value (including assumed debt), RJR Nabisco was by far the largest leveraged buyouts in history. In 2006 and 2007, a number of leveraged buyout transactions were completed that for the first time surpassed the RJR Nabisco leveraged buyout in terms of nominal purchase price. The deal was first surpassed in July 2006 by the $33 billion buyout of U.S. hospital operator Hospital Corporation of America, in which KKR also participated, though the RJR deal was larger, adjusted for inflation. However, adjusted for inflation, none of the leveraged buyouts of the 2006 – 2007 period would surpass RJR Nabisco. The RJR transaction benefited many of the parties involved. Investment bankers and lawyers who advised KKR walked away with over $1 billion in fees, and Henry Kravis and George Roberts attracted unprecedented amount of publicity that turned the cousins into instant celebrities. Unfortunately for KKR, size would not equate with success as the high purchase price and debt load would burden the performance of the investment. KKR was able to overcome the RJR Nabisco investment, raising a new investment fund and continuing to invest throughout the 1990s.

The buyout of RJR Nabisco was completed in April 1989 and KKR would spend the early 1990s focused on the task of repaying the RJR's enormous debt load through a series of asset sales and restructuring transactions. After the RJR Nabisco deal, KKR did not complete a single investment in 1990, the first year with no new investment activity since 1982. In fact, KKR did not complete another major leveraged buyout transaction for over three years, due largely to the shutdown of the high yield bond market and the collapse of Drexel Burnham Lambert which filed for bankruptcy in February 1990. Instead, KKR focused primarily on its existing portfolio companies acquired in the late 1980s buyout boom. Six of KKR's portfolio companies completed IPOs in 1991, including RJR Nabisco and Duracell.

As the new decade began, KKR was immediately active in restructuring RJR. In January 1990, KKR completed the sale of RJR's Del Monte fruits and vegetables business to a group led by Merrill Lynch. KKR had originally identified a group of divisions that it could sell to reduce debt. Over the coming years, RJR would pursue a number of additional restructurings, equity injections and public offerings of stock to provide the company with additional financial flexibility. KKR contributed $1.7 billion of new equity into RJR in July 1990 to complete a restructuring of the company's balance sheet that appeased unhappy bondholders. KKR's equity contribution as part of the original leveraged buyout of RJR had been only $1.5 billion. Later, in December 1990, RJR announced an exchange offer that would swap debt in RJR for a new public stock in the company, effectively an unusual means of taking RJR public again and simultaneously reducing debt on the company. RJR issued additional stock to the public in March 1991 to further reduce debt, resulting in an upgrade of the credit rating of RJR's debt from junk to investment grade.

KKR would begin to reduce its ownership in RJR, when in 1994, its stock in RJR was used as part of the consideration for its leveraged buyout of Borden, Inc., a producer of food and beverage products, consumer products, and industrial products, in a highly complex and unprecedented transaction. The following year, in 1995, KKR would divest itself of its final stake in RJR Nabisco when Borden sold a $638 million block of stock.

While KKR no longer had any ownership of RJR Nabisco by 1995, its original investment would not be fully realized until KKR finally exited the last of its investment in 2004. After sixteen years of efforts that included contributing new equity, taking RJR public, asset sales and exchanging shares of RJR for the ownership of Borden, Inc., KKR had finally sold the last remnants of its 1989 investment. In July 2004, KKR agreed to sell its stock in Borden Chemical to Apollo Management for $1.2 billion.

In the early 1990s, the absence of an active high yield market prompted KKR to change its tactics, avoiding large leveraged buyouts in favor of industry consolidations through what were described as leveraged buildups or rollups. One of KKR's largest investments in the 1990s was the leveraged buildup of Primedia in partnership with former executives of Macmillan Publishing, which KKR had failed to acquire in 1988. KKR created Primedia's predecessor, K-III Communications, a platform to buy media properties, initially completing the $310 million divisional buyout of the book club division of Macmillan Publishing (publisher of The Weekly Reader) and the assets of magazine publisher Intertec Publishing Corporation in May 1989. Throughout the early 1990s, K-III continued to acquire publishing assets, including a $650 million acquisition from News Corporation in 1991.K-III went public, however instead of cashing out, KKR continued to make new investments in the company in 1998, 2000 and 2001 to support acquisition activity. Ultimately, in 2005, Primedia redeemed KKR's preferred stock in the company but KKR was estimated to have lost hundreds of millions of dollars on its common stock holdings as the price of the company's stock collapsed.

In 1991, KKR partnered with Fleet/Norstar Financial Group in the 1991 acquisition of the Bank of New England, from the US Federal Deposit Insurance Corporation. In January 1996, KKR would exchange its investment for a 7.5% interest in Fleet Bank. KKR also completed the 1992 buyout of American Re Corporation from Aetna as well as a 47% interest in TW Corporation, later known as The Flagstar Companies and owner of Denny's in 1992. Among the other notable investments KKR completed during the early 1990s included World Color Press (1993-95), RELTEC Corporation (1995) and Bruno's (1995).

By the mid 1990s, the debt markets were improving and KKR had move on from the RJR Nabisco buyout. In 1996, KKR was able to complete the bulk of fundraising for what was then a record $6 billion private equity fund, the KKR 1996 Fund. However, KKR was still burdened by the performance of the RJR investment and repeated obituaries in the media. KKR was required by its investors to reduce the fees it charged and to calculate its carried interest based on the total profit of the fund (i.e., offsetting losses from failed deals against the profits from successful deals).

KKR's activity level would accelerate over the second half of the 1990s making a series of notable investments including Spalding Holdings Corporation and Evenflo(1996), Newsquest (1996), KinderCare Learning Centers (1997), Amphenol Corporation (1997), Randalls Food Markets (1997), The Boyds Collection (1998), MedCath Corporation (1998), Willis Group Holdings (1998), Smiths Group (1999) and Wincor Nixdorf (1999).

KKR's largest investment of the 1990s, would unfortunately also be among its least successful. In January 1998, KKR and Hicks, Muse, Tate & Furst agreed to the $1.5 billion buyout of Regal Cinemas. KKR and Hicks Muse had initially intended to combine Regal with Act III Cinemas, which KKR had acquired in 1997 for $706 million and United Artists Theaters, which Hicks Muse had agreed to acquire for $840 million in November 1997. Shortly after agreeing to the Regal takeover, the deal with United Artists fell apart, ultimately impacting the strategy to eliminate costs by building a larger combined company. Just two years later, Regal encountered significant financial issues and was forced to file for bankruptcy protection and the company would pass to investor Philip Anschutz.

At the start of the 21st century, the landscape of large leveraged buyout firms was changing. Several large and storied firms, including Hicks Muse Tate & Furst and Forstmann Little & Company were dragged down by heavy losses in the bursting of the telecom bubble. Although, KKR's track record since RJR Nabisco was mixed, losses on such investments as Regal Entertainment Group, Spalding, Flagstar and Primedia (previously K-III Communications) were offset by successes in Willis Group, Wise Foods, Inc., Wincor Nixdorf and MTU Aero Engines, among others.

Additionally, KKR was one of the few firms that was able to complete large leveraged buyout transactions in the years immediately following the collapse of the Internet bubble, including Shoppers Drug Mart and Bell Canada Yellow Pages. KKR was able to realize its investment in Shoppers Drug Mart through a 2002 IPO and subsequent public stock offerings. The directories business would ultimately be taken public in 2004 as Yellow Pages Income Fund, a Canadian income trust.

In 2004 a consortium comprising KKR, Bain Capital and real estate development company Vornado Realty Trust announced the $6.6 billion acquisition of Toys "R" Us, the toy retailer. A month earlier, Cerberus Capital Management, made a $5.5 billion offer for both the toy and baby supplies businesses. The Toys 'R' Us buyout was one of the largest in several years. Following this transaction, by the end of 2004 and in 2005, major buyouts were once again becoming common and market observers were stunned by the leverage levels and financing terms obtained by financial sponsors in their buyouts.

The following year, in 2005, KKR was one of seven private equity firms involved in the buyout of SunGard in a transaction valued at $11.3 billion. KKR's partners in the acquisition were Silver Lake Partners, Bain Capital, Goldman Sachs Capital Partners, The Blackstone Group, Providence Equity Partners, and Texas Pacific Group. This represented the largest leveraged buyout completed since the takeover of RJR Nabisco in 1988. Also, at the time of its announcement, SunGard would be the largest buyout of a technology company in history, a distinction it would cede to the Blackstone-led buyout of Freescale Semiconductor. The SunGard transaction is also notable in the number of firms involved in the transaction, the largest club deal completed to that point. The involvement of seven firms in the consortium was criticized by investors in private equity who considered cross-holdings among firms to be generally unattractive.

Other non-buyout investments completed by KKR during this period included Legg Mason, Sun Microsystems, Tarkett and Seven Network. In October 2006, KKR acquired a 50% stake in Tarkett, a France-based distributor of flooring products, in a deal valued at about €1.4 billion ($1.8 billion). On November 20, 2006 KKR announced it would form a AU$4 billion partnership with the Seven Network of Australia. On January 23, 2007, KKR announced it would invest $700 million through a PIPE investment in Sun Microsystems. In January 2008, KKR announced that it had made a $1.25 billion PIPE investment in Legg Mason through a convertible preferred stock offering.

In addition to its successful buyout transactions, KKR was involved in the failed buyout of Harman International Industries (NYSE: HAR), an upscale audio equipment maker. On April 26, 2007, Harman announced it had entered an agreement to be acquired by KKR and Goldman Sachs. As the financing markets became more adverse in the summer of 2007, the buyout was on tenuous ground. In September 2007, KKR and Goldman backed out of the $8 billion buyout of Harman. By the end of the day, Harman's shares had plummeted by more than 24% on the news.

In 2007, KKR filed with the Securities and Exchange Commission to raise $1.25 billion by selling an ownership interest in its management company. The filing came less than two weeks after the initial public offering of rival private equity firm Blackstone Group. KKR had previously listed its KPE vehicle in 2006, but for the first time, KKR would offer investors an ownership interest in the management company itself. The onset of the credit crunch and the shutdown of the IPO market would dampen the prospects of obtaining a valuation that would be attractive to KKR and the flotation was repeatedly postponed, and finally called off by the end of August.

The following year, in July 2008, KKR announced a new plan to list its shares. The plan called for KKR to complete a reverse takeover of its listed affiliate KKR Private Equity Investors in exchange for a 21% interest in the firm. In November 2008, KKR announced a delay of this transaction until 2009. Shares of KPE had declined significantly in the second half of 2008 with the onset of the credit crunch. KKR has announced that it expects to close the transaction in 2009.

Over the years, KKR has seen the departure of many of it lost many of its original partners, the most notable being the most senior of its three co-founders, Jerome Kohlberg. After a leave of absence due to an illness in 1985, Kohlberg returned to find increasing differences in strategy with his partners Kravis and Roberts. In 1987, Kohlberg left KKR to found a new private equity firm Kohlberg & Company. Kohlberg & Company would return to the investment style that Kohlberg had originally practiced at Bear Stearns and in KKR's earlier years, acquiring smaller, middle-market companies.

As of 1996, general partners of KKR included Henry Kravis, George R. Roberts, Paul Raether, Robert MacDonnell, Jose Gandarillas, Michael Michelson, Saul Fox, James Greene, Michael Tokarz, Clifton Robbins, Scott Stuart, Perry Golkin and Edward Gilhuly. Among those who would leave included Saul Fox, Ted Ammon, Ned Gilhuly, Mike Tokarz and Scott Stuart who were instrumental in establishing KKR's reputation and track record in the 1980s. KKR remains tightly controlled by Kravis and Roberts. The issue of succession has remained an important consideration for KKR's future as an ongoing institutionalized firm.

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MCOT Public Company Limited (Thai: บริษัท อสมท จำกัด (มหาชน)) is a Thai media conglomerate. Its origins date back to the creation in 1955 of Thailand's first television broadcaster, The Thai Television Company Limited. In 1977, this company was reconstituted as a state enterprise, the Mass Communications Organization of Thailand. In August 2004, the Thai government corporatized the Mass Communications Organization of Thailand and renamed it MCOT Pcl. The company was partially privatized in an initial public offering later that same year, with the Thai Ministry of Finance retaining a 77 percent stake.

Headquartered in Bangkok, MCOT operates a television station, Modernine TV (formerly Channel 9),mcot1-2and news24, and a nationwide network of 62 radio stations. The company also owns TV Channel 3, but contracts the management of that station out to a private operator, BEC World. In addition, MCOT operates the Thai News Agency (TNA) wire service.

The Ministry of Finance diluted its 100% ownership of MCOT to 75% in a 2004 IPO. The IPO was designed to allocate as much stock as possible to retail investors, and in accordance with Thai law, foreign investors could not hold more than 15% of the offering. Investors subscribing to less than 100,000 Baht of shares were given first priority, and shares were sold via commercial banks rather than investment banks or brokers.

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Source : Wikipedia