Critical Evaluation of the Strategies of Privatization and Public Offerings

the height of the bank´s quota and its position within the syndicate exists, which is in turn substantial for the prestige and the future business of a bank. In case of an applicability of German law, offering syndicates are to be seen as civil law association according to §§ 705 f. BGB. They are a temporary union of still independently acting banks. The common purpose to be promoted by all syndicate members is the takeover, payment and placement of the respective securities. Considering the interests of the offering company, resulting from engagement of the syndicate banks further disposal to investors is also part of the contract, this agreement has not to be expressed separately. An obligation to run any actions in order to support the price can not be derived neither from the syndicate relationship nor from the takeover contract. Independent from the legal classification made previously, offering syndicates predominantly are not acting conformal with the norms of the §§ 705 pp. BGB, however. Essential elements of this are required by the contract or - for other reasons are not applicable. Regularly, the exclusion of joint tenancy and a joint debtor´s liability of the syndicate is agreed. Therefore, the syndicate members oblige themselves for takeover and payment of their prorata emission. Nevertheless, the other syndicate members are obliged to takeover the quota in case of failure of one syndicate member (up to the amount of their percentage quota corresponding to their tranche). The common management provided by § 709 BGB is also applicable in essential points. It is perceived by the syndicate leader in daily business. The syndicate leader represents the syndicate within the limits set by the syndicate agreements. The agreement about the syndicate formation as articles of incorporation regularly takes place through invitation letter of the syndicate leader to the other syndicate members and their consent about its content. Attached to the invitation letter is a termsheet, which represents the structure of the offering with its offering terms, the [...]

IPOs, in which only one bank is engaged, are rare and restricted to offerings with a low placing volume. At large offering volumes the placing strength of several banks is needed, depending on the offering also in various regions. Primarily, the purpose is to be seen in the distribution of takeover risks as well as in reducing the claims of the equity capital of the banks involved. Though, the syndicates should not be too big either, as quotas are getting unattractively otherwise. The quota spread within the syndicate plays a great role since it represents the decisive unit for the yield potential. In addition, an interaction between [...]

7.4.5.2 Firm Commitment Credit institutions or security companies are involved into the emission process at the firm commitment method38. They provide their experience with regards to the IPO prospectus lay-out, timing of the emission etc. as well as their sales organization and possibilities. Primarily, they are better in assessing how many shares can be launched at the market and at which price it is possible to distribute the shares. The firm commitment can be arranged in two different ways. 39 First possibility is to form the contract between the bank consortium and the issuer as a commission contract so that credit institutions only commit for commissionary placement of shares. Then they have to try to get a durable accommodation of the shares at the market, but, however, do not have to guarantee for this. The risk of the success in placement remains with the issuer. The second possibility of contracting with the consortium banks is to arrange a takeover contract. In this case, the banks involved are taking over all issued shares at a particular time and have to provide the company with the complete equivalent of the [...]