By Lauren Tara LaCapra
May 1 (Reuters) - A Goldman Sachs Group Inc affiliate
plans to spend $743 million to buy Ebix Inc, an
insurance software provider that has been a target of
allegations from short-sellers about inaccuracies in its
An affiliate in Goldman's merchant bank agreed to pay $20 per
share for Ebix, which repeatedly has denied claims by the short
sellers - some made as recently as in March - in critical
reports posted online.
The on-and-off allegations of shoddy accounting practices
have roiled the company's stock, sending its shares down 37
percent since accusations first surfaced in March 2011 through
Tuesday's close before news of the deal broke.
The signal of confidence from Goldman sent Ebix shares up 11
percent, to close at $20.60 on Wednesday.
Sumit Rajpal, a managing director at the bank, did not
address the controversy that has surrounded the company. He said
in a statement that Goldman has "great respect" for Ebix and
wants to help it grow.
Ebix has repeatedly denied short sellers' allegations in the
past. A spokesman offered no further comment on Wednesday and
its investor relations department did not respond to a request
Goldman's merchant bank makes private-equity type
investments in companies using the bank's own capital as well as
client money. A person familiar with the matter said Goldman
performed due diligence on Ebix and felt confident that
accusations leveled against the company had no merit.
The price offered by Goldman is a 7.5 percent premium to
Ebix's closing price on Tuesday. The merger agreement includes a
"go-shop" provision that allows Ebix to seek a better deal from
other potential acquirers over the next 45 days.
Ebix Chief Executive Robin Raina, who owns a big chunk of
the company's stock, said the board had considered "a number of
potential alternatives" and unanimously agreed to be taken
private by Goldman.
The buyout was unexpected, given Ebix's recent history and
languishing stock price.
Ebix first confronted accusations that its financial
statements were inaccurate on March 24, 2011, when an
unidentified person posted a report on financial blog Seeking
Alpha questioning its accounting, sales and expenses. The
blogger, using the name Copperfield Research, said he or she was
shorting Ebix shares.
Ebix refuted the claims but its shares, which had previously
been trading around $29, fell 24 percent that day.
Accusations did not stop there.
A Bloomberg report on November 5 that the U.S. Securities
and Exchange Commission was looking into Ebix's accounting
practices sent its stock down 14 percent.
The company denied that it was being investigated by the SEC
and no official investigation has been announced. Correspondence
between Ebix and the SEC show the agency's staff questioning the
company about some of its statements and asking it to improve
Then on February 21, a firm called Gotham City Research LLC
posted a critical report on Seeking Alpha about Ebix and its
accounting practices. Ebix's stock fell 27 percent that day.
Gotham City has ties to short seller Daniel Yu, an investor
who earlier gained attention by shorting Green Mountain Coffee
Roasters Inc and Sino-Forest Corp, and frequently
shares his investment ideas on Twitter.
At the time, Ebix called Gotham's report "unsubstantiated"
and said its accounting "is appropriate and complies with all
SEC reporting requirements."
If Goldman's deal goes through, it will also assume roughly
$77 million in Ebix debt, bringing the total deal value to $820
million. Goldman and Credit Suisse AG have made debt
Morgan Stanley advised Ebix's board, which
unanimously voted for the deal. Raina and the Rennes Foundation,
which together own 19 percent of the company, also voted in
favor of the deal.