Is Ernst & Young an investment Bank?



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Hi Binny,

I was just going through the press release of the merger announcement between tech mahindra & its subsidiaries with sathyam computers and its subsidiaries. (The press release is available here http://www.techmahindra.com/news/techmahindra_press_release.aspx?PID=108).

1. In the list of advisors, E&Y is the advisor for the merger, instead of an investment bank, like what credit suisse and J P Morgan were for the SBC & AT&T transaction. So is it that entities also have an option of going to an audit firm for such advice?

2. Though E&Y has provided advice on the merger, 2 investment banks have provided 'fairness opinions' to the board of each company. What is the meaning, purpose and contents of a fairness opinion?

3. Now that the merger announcement has been made public and there is a prospect of increase in the share swap ratio, I being an investor would like to make an arbitrage gain by buying these shares now (or say of any 2 companies of which I have got insider information). What will be the factors to decide, by buying which companies share, I would make maximum gains? That is to say, probably what factors had Rajaratinam considered while deciding to buy the shares of either GS or bekshire hathaways shares or both?

7 Answer(s)


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1. E&Y has an internal Investment Banking division called TAS - Transactional Advisory Group. The TAS team are really a bunch of investment bankers. We all know E&Y for audit, but they also have a small IB practice.

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The "fairness opinion" is an independent opinion from experts saying that the price that this company is being sold for is fair and the shareholders are getting their rightful due. Typically the fairness opinion is offered by a I Bank that is not advising the board on the deal. This is to prevent conflicts.

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3. Rajaratnam knew in advance that the GS board might get an investment from Buffett. Obviously this is illegal since he got the information before the general public did. I think the only factor to consider that is buying shares based on insider information is illegal :)

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Really appreciate the time you take to answer each query Binny. Highly commendable.

Further to your responses, could you please further clarify these queries?

1. I wasn't aware TAS is as good as IB. Should IBs be registered under SEBI or some entity? Aren't there any specific norms that only IBs can provide M&A advisory and stuff?

3. Yes I appreciate the act was illegal. But my question was more from a stock market investors point of view. When I get a news that I would like to bet upon, say SBI is going to acquire SIB, how do I assess the 2 stocks and pick one. Generally the knowledgeable practice would be to use DCF and find the intrinsic value, compare it with the market price and make a choice of either to buy/sell! But in situations like this, how do we better assess?

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1. Yes I am sure all IB's are registered under SEBI. But also I dont think that is the case with everyone. For example if you decided to start a boutique IB consulting I dont think you need to register with SEBI.

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As a thumb rule in cases of M&A the Buyers stock price will go down and the sellers stock price will go up. This typically happens because the seller is selling at a premium and hence the share price will go up and more often than not, the buyers shareholders feel that the buyer is overpaying and hence sell the buyers shares leading to a fall in the share price.

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Fair enough... Thank you! :)