Coal India IPO: set to be the largest in the Indian history

The Indian capital market turned black into gold last week. The initial public offer of Coal India was set to be the largest in Indian history from the moment it opened, but even the biggest bulls in the ring were left stunned by the money it mined by the time it closed: a mobilization of Rs 2.36 trillion ($53bn), over 15 times the target of Rs 155 billion. 

It's a mind-boggling testimony to the amount of money floating around in Indian markets, the hunger for good stocks, and the sheer euphoria about the India story. The success of Coal India also sets an impressive benchmark for biggies like SAIL, Hindustan Copper, Manganese Ore and Power Grid which are lined up to tap the capital markets in coming months. 

It can be a little hard to get one's head around all the zeroes in a figure like Rs 2.36 trillion (or $53bn). So here's some perspective. The amount of money that flowed into the offering by the `black diamond' in just four days is more than last year's GDP of about 140 countries. Nearer home, it is more than the GDP of Srilanka ($42 billion) and four times that of Nepal ($12.5 billion), according to data on the World Bank's website. It is also almost 10 times India's health budget of Rs 251.54 billion for 2010-11, nearly five times our education budget of Rs 499.04 billion and almost one-fourth the size of the Union budget itself. 

Here's another fascinating comparison: Foreign institutional investors (FIIs) have pumped in a record Rs 1.08 trillion into Indian stocks so far this year. For the Coal India IPO alone, they have put in bids worth Rs 1.20 trillion. This is one of the best PSUs (CIL is the world's largest coal producer and accounts for 80% of India's coal production) and was offered at a very good valuation. The huge oversubscription also reflects the easy liquidity situation abroadd. With interest rates at extremely low levels in most developed countries, FIIs can easily borrow there and pump in money into attractive stocks in emerging markets, which is exactly what happened in this case.

The offer also witnessed a rise in the average retail application size to Rs 70,000-75,000 from Rs 40,000-45,000 in other recent offerings. The strong retail participation in the IPO might actually make the case stronger for SEBI to increase the maximum retail application size to the proposed Rs 0.2 million.. 

Demand was strongest from qualified institutional buyers, which includes FIIs, mutual funds and insurance firms, who bid for 24.7 times the shares on offer to them. Initial indications are that retail investors bid 2.4 times the shares allocated to them, with a record of 1.8 million applications, and this figure was expected to rise. Ironically, Coal India employees themselves stayed away from the IPO, with their bids amounting to barely 9% of the shares reserved for them. 

Understandably, the government, which is looking to divest 10% of its 100% stake in the company, was ecstatic at the positive response. Comparisons are being drawn between this IPO and the Reliance Power IPO that closed in January 2008 and was subscribed 73 times. However, the rules of bidding were markedly different then. During the Reliance Power IPO, institutions were allowed to bid with just 10% margin money. So, if an FII had $50 million to put into the offer, it could actually put in a bid for shares worth $500 million. But a few months ago, Sebi scrapped this practice. So, an FII can bid $50 million for Coal India only if it wants shares worth that much. 

Market players also believe with a series of PSUs now lined-up for divestment, the success of this offer would now make the government more confident about these offers. This would also give investors much higher confidence to invest in PSU stocks in general, and the forthcoming divestments in particular.www.coalindia.in/

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Equity Research in India

Société Générale wants to increase business with its wealthiest clients – and it is tapping analysts in India to do it. Société Générale Private Banking recently announced that it had hired Copal Partners, a financial research outsourcing company, to analyze stocks for its private wealth clients.

Copal Partners, which has the bulk of its 1,200 employees in Delhi, but also has analysts in Beijing and Buenos Aires, will do research and write reports on about 200 companies, including many in emerging markets. These reports will be co-branded with the bank’s name and Copal’s. Copal Partners’ analysts will also do tailor-made research at private banking clients requests.

Investment banks have been quietly sending some equity research work to lower-cost areas like India for years now, and many of the biggest Wall Street banks employ hundreds of these outsourced analysts. Copal itself says it counts 8 of the top 10 bulge-bracket banks as clients.

But in the past, these analysts have stayed far in the background. The Wall Street bank’s name-brand analysts have generally used the research they get from India, Sri Lanka, Latin America or elsewhere, and incorporated it into reports they wrote themselves, or at least put their name to. Research analysts in areas like India can cost 70 percent less than their counterparts in banking centers like New York, London and Hong Kong.

Société Générale Private Banking’s equity research had ome weaknesses in Latin America, in India and in Eastern Europe and teaming with Copal will help increase coverage there. The bank was lacking the resources to expand that coverage while maintaining enough portfolio of analysts who meet regularly with clients

Copal’s chief executive, Rishi Khosla, said the partnership with the French bank “cements Copal’s position as the leading research player supporting the investment research community.”

The private banking industry is undergoing major upheaval, as some investment banks sell their units to raise cash after the credit crisis, and others, including Société Générale, look for acquisitions. Société Générale has 82.3 billion euros of assets under management at the end of June. Private banks are also increasing their presence in Asia to serve a growing number of millionaires and billionaires in the region, and competition for these new clients is fierce.

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Sidney Weinberg Jr. and the End of an Era of Family Business at Goldman

Sidney J. Weinberg Jr. retired as a general partner from Goldman Sachs in 1988, but almost every week afterward until his death, he came into the office. He would meet with staff to give advice about Goldman’s culture and values, hoping to leave a little of the firm’s past in the present.

On October 13, 2010 hundreds of Goldman executives and alumni, including Goldman’s chief executive and chairman, Lloyd C. Blankfein, joined with Mayor Michael R. Bloomberg and others to gather at the Knickerbocker Club on Manhattan’s Upper East Side and pay their respects to Mr. Weinberg’s family. Known as Jimmy, Mr. Weinberg, 87, worked at Goldman for almost 40 years, and at different times both his father and uncle ran firm, which was founded in 1869.

Mr. Weinberg’s death on Oct. 4 marked the end of an era, not just for Goldman, but for all of Wall Street, which for years was controlled by private firms run by families like the Weinbergs. Mr. Weinberg died at his home in Marion, Mass. In Mr. Weinberg’s heyday, things were simpler. Firms had limited appetite for risk. Instead, brokerage firms focused on advisory work and raising capital for others.

Today, firms like Goldman Sachs and Morgan Stanley are publicly traded, a move that allowed them to push into new and sometimes controversial areas like trading, risking billions of dollars of capital in pursuit of bigger profits.

“He was his father’s son and he heard about the family business every night at dinner,” said Goldman’s former co-chairman, John Whitehead, a longtime friend of Mr. Weinberg’s.  “His death is definitely the formal end of an era in family businesses on Wall Street. The firms are much more professional now.”

Lehman Brothers was founded in 1850 by Henry and Emanuel Lehman as an Alabama cotton trader. They and their descendants played an important role in running the firm until 1969 when Robert Lehman, then at the helm of the firm, died. And Goldman was founded by Marcus Goldman, who later asked his son in law Samuel Sachs to join the business, forming Goldman Sachs.

In 1907, Sidney J. Weinberg Sr., Mr. Weinberg’s father, was hired at Goldman. His first job: cleaning spittoons. In the late 1930s, he was named senior partner, a position he held almost until his death in 1969. His brother John L. Weinberg, also joined Goldman and ran the firm from 1976 to 1990. Both are now dead.

Sidney J. Weinberg Jr. joined Goldman Sachs as a general partner in 1965 and led its investment banking services department from 1978 to 1988. He continued to work at the firm, becoming first a limited partner and then senior director, titles given to some retired partners. Unlike many Goldman alumni, Mr. Weinberg kept an intentionally low profile over the years. One friend said that he Googled Mr. Weinberg’s name when he died and that it found no articles on him. “He would have considered that a badge of honor,” this person said.

The Weinberg name still casts a long shadow on Goldman and Wall Street: Peter formerly worked at Goldman, and a nephew, John S. Weinberg, is currently a vice chairman at the firm.

Still, Sidney Weinberg’s Wall Street is gone. Goldman was one of the last brokerage firms to go public, offering its shares to the public in 1999. Its public offering transformed the firm, giving it access to capital markets, a currency that allowed it to pay people more and aggressively expand both at home and abroad.

Mr. Weinberg opposed Goldman’s initial public offering, but Mr. Whitehead says he knew that expansion was inevitable. “We all came around,” said Mr. Whitehead, who last saw Mr. Weinberg on July 1. The two men met for lunch at Mr. Weinberg’s home. Mr. Whitehead says they shared a glass of white wine on the porch, before retiring for lunch. “Our successors saw the opportunity for us and going public was necessary.”

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Sale of Yahoo???

Reports from All Things D and The Wall Street Journal have indicated that buyout firms are contemplating teaming up with AOL or the News Corporation to buy Yahoo. Although a deal is not in the corner soon but the trial balloon in the media is coming from a handful of bankers and investors who have tried to gin up interest in a deal for months. And at least a few of the named “suitors” in The Journal’s story, like the Blackstone Group, have already passed on the idea.

More importantly, Yahoo first heard about the rumors from the media and its own investment bankers at Goldman Sachs, according to people close to the company.That doesn’t mean bankers haven’t been running the numbers. And companies like AOL and the private equity firm Silver Lake are intrigued with the idea. AOL’s chief executive, Tim Armstrong, would love to find a way to merge both companies to generate more scale in the display advertising business.

But making a deal work would require fancy footwork and risk. AOL’s market value is about $2 billion, while Yahoo’s is now about $20 billion — before a premium.

The back-of-the-envelope math requires that Yahoo sell its 39 percent stake in Alibaba, one of China’s biggest Internet companies and considered one of the company’s biggest and most desirable assets, which could be worth $12 billion. That would put Yahoo closer to a more-reasonable $8 billion, again before a premium.

But Yahoo believes that Alibaba will fetch more in a public spinoff down the road than in a sale now, so why sell now? And while Alibaba would love to buy out Yahoo’s stake in itself, such a move would require the Chinese Internet company to raise yet more capital, increasing the potential price of a deal. Don’t forget as well that Yahoo’s chief executive, Carol Bartz, believes she can turn around the company and raise its revenue — as long as she’s given some more time.

It’s possible that the emergence of the reports will prod a sale process along, at some point down the road. But for the moment, talk of a deal is still pie-in-the-sky.

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What a Microsoft-Adobe Merger Might Look Like??

Tthe chief executives of Microsoft and Adobe Systems met recently to discuss, among other possibilities, a potential merger of the two tech giants. The idea was one of several floated by the two, Steven A. Ballmer of Microsoft and Shantanu Narayen of Adobe, as they brainstormed ways to combat Apple. But what would a union of the two bring — if, of course, it were to come to pass at all?

Investors certainly seem happy about the prospect. Despite its size — $212.7 billion in market value, with $36.6 billion in cash and short-term investments as of June 30 — Microsoft hasn’t really done big acquisitions. (Its largest attempt was for Yahoo in 2008, and that went nowhere.) Adobe would be its largest by far, with a market value of $15.1 billion as of Thursday.

The two  tech giants have held merger talks before, but didn’t go far because of Microsoft’s concerns over antitrust consequences. This time, however, Microsoft isn’t the big gorilla in the tech landscape, so it is possible a deal wouldn’t be as problematic now. Still, the talks appear not to have advanced beyond a very preliminary discussion.

Both companies have several points of contention with Apple, but they share one: The maker of iPhones and iPads won’t let their multimedia platforms onto the popular devices. Adobe makes the ubiquitous Flash software, while Microsoft makes the rival Silverlight platform. Flash is now available on Google’s Android operating system and Microsoft’s forthcoming Windows Phone 7.

Microsoft may also want Adobe’s other software products, which include the Creative Suite, home of Photoshop and Illustrator, and Acrobat.

Check the space for more on the Microsoft-Adobe deal…..

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Company Comparable Analysis

As the name “Company Comparable Analysis or Comp” implies, its basically comparison of a public company among its peer groups based on certain metrics. Comps involve comparison of operating metrics and evaluation multiples of a publicly traded company among its peer groups. Peer may be grouped based on industry focus, end market, customers or company size. Comps are prepared for applications in Mergers & Acquisition activities, IPO’s (initial public offering), FPO’s (follow on public offering), share repurchase, restructuring etc. It is used by investment bankers to see how the public markets value a company. Preparation of Company Comparable Analysis is the basic task of an investment banker and he uses the operating metrics and the valuation multiples obtained by the preparation of the Company Comparable Analysis to determine an appropriate valuation multiple for the company.

The inputs to the comps are the Consolidated Financial Statements. It involves the complete spread of the Consolidated Balance Sheet or only the EV items (Enterprise Value items include Cash & Cash Equivalents, Short term and Long term Debts, Minority Interest and Shareholder’s Equity) depending on the requirement. Then, Consolidated Statement of Operations or Income is spread completely or till the Operating profit depending on the required multiple. Depreciation & Amortization and Capital Expenditures are taken from the Cash Flow Statement. After preparation, the comp output obtained through the help of FactSet is compared with sources like FactSet, Bloomberg etc to check for sanity of the multiples with the peer group.

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Legendary Wall Street Investment Banker Bruce Wasserstein's Death Triggers $188M Payout

It'll take more than just death to stop legendary Wall Street Investment Banker Bruce Wasserstein from making money. The Lazard chief's death on Wednesday triggered the vesting of $188 million in stock options, swelling a fortune recently estimated at $2.2 billion and cementing his status as one of the highest-paid bankers in history. Wasserstein was ranked 147th on the latest Forbes list of the 400 richest Americans. Wasserstein—known in the financial world as "Bid 'Em Up Bruce"—was paid $20.8 million a year, millions more than the combined salaries of the four most senior Lazard execs beneath him, the Wall Street Journal notes.

Wasserstein had been a fixture on Wall Street since the 1980s. He worked on such landmark deals as Kohlberg Kravis Roberts' takeover of RJR Nabisco, and the Morgan Stanley-Dean Witter and AOL-Time Warner mergers. Aside from his work at Lazard, Wasserstein was chairman of Wasserstein & Co., a private investment firm. It has investments in companies ranging from Penton Media, a publisher of trade magazines, to gourmet food seller Harry & David. Wasserstein also owns New York Media Holdings LLC, which publishes New York magazine.

Bruce Wasserstein

An American Investment Banker and businessman. He was a graduate of the McBurney School, University of Michigan, Harvard Business School, and Harvard Law School, and spent a year at Cambridge University.

Wasserstein helped broker more than a thousand transactions worth $250 billion since the 1980s. Starting his career as a Cravath, Swaine & Moore attorney, he later rose to co-head of First Boston Corp.'s dominant merger and acquisition practice. He eventually formed investment bank boutique Wasserstein Perella & Co., which he sold in 2000, at the top of the 1990s bull market, to Germany's Dresdner Bank for around $1.4 billion in stock. He left the unit Dresdner Kleinwort Wasserstein to take the job at Lazard Frères. In 2005, he completed the initial public offering for Lazard.

Wasserstein controlled Wasserstein & Co., a private equity firm with investments in a number of industries, particularly media. In 2004, he added New York Magazine to his media empire. In July 2007, he sold American Lawyer Media to Incisive Media for about $630 million in cash. He is credited with the term, Pac-Man defense, which is used by targeted companies during a hostile takeover attempt.

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