Case studies

This case was designed to facilitate discussion of how a cyberattack was remediated by a major public university. Students are challenged to think through how to best manage the remediation project, including the application of best practices such as risk management, stakeholder management, communication plans, outsourcing/procurement management, and cyberattack remediation. The Phoenix Project was a success from multiple perspectives, and as such provides a useful example of how to manage an unplanned, mission-critical project well.

Communication Solutions (CS), a woman-owned business, experienced fast growth at its inception, and then found itself slowing after the mid-2000s recession. The firm provides consulting services, primarily to government agencies. The owners have brought the business to sales of about $10.5 million in 2012, but revenues declined following that peak year because of cutbacks in government spending and founder Jennifer Madison’s detachment from the business. Even though they recognize that it may not be an ideal time to sell, they are tired of running the business and want to sell now, as long as they can pay off their debts.

This case was researched through multiple interviews with Mark and Jennifer, who provided all of the financial data and background. All financial statements given in the case provide actual CS numbers. The name of the company and the names of the owners have been changed, at their request to disguise the company. At the time this case was written, the owners were in negotiation with a potential bidder, and did not want their names or their company name to be used. Market information and information about comparable companies was researched using publicly available financial data bases.

This case has the potential to be used in a variety of classes, depending on what the instructor wishes to emphasize. The author uses the case as a valuation case in a corporate finance class (suitable for undergraduates or MBAs), allowing students practice in discounted cash flow valuation and comparable multiples valuation. It could be used in an investments class which teaches business valuation, particularly in teaching valuation using market multiples. The case could be used in an entrepreneurial finance class. The author uses this case to illustrate the difficulties of business valuation with messy (but real) data.

This case explores small business valuation and exit strategies for founders. Students can put themselves in the position of small business owners who are ready to exit. Students should value the firm using discounted cash flow and multiples valuation, which includes making assumptions about the future growth of the firm. While there is likely to be reasonable agreement on the “as is” valuation, there may be great variation concerning the assumptions and valuations of the company as it could be. Students can discuss (and implement) adjustments made when using large company comparables to value a much smaller company.

This case traces through a 20-year history of a Chinese high-tech company, Maipu Communications Technology Company. Throughout the company’s growth, Maipu adjusted its innovation models in order to ensure that they remained compatible with corporate strategies, resources and external environments. However, as the company grew bigger, it was finding it more and more difficult to meet its innovation goals. Its current innovation model is a market-driven platform + distributed innovation. While Maipu has achieved some success under this model, it is faced with a myriad of challenges during the execution of the model. The key questions raised by this case are whether Maipu’s current innovation model is suitable for the company at this stage and how the innovation model should be adjusted to propel new innovation and growth opportunities for Maipu in this increasingly competitive market.

This case was a field research case. The authors paid three visits to Maipu Communications Technology Company, during which the authors conducted in-depth interviews with Mr Zhao, the Head of Maipu’s R&D and Innovation group, and several senior and functional managers of the company. Follow-up communication via telephone and e-mail was conducted to verify the accuracy of the written case.

This case is well suited for courses in the areas of strategic management, innovation management, high-tech management, entrepreneurship, and international business. The target audiences of the case are primarily MBA students, although this case can also be used in upper-level undergraduate business courses.

The theoretical basis for this case includes the following management theories: strategy formulation and strategy implementation, business-level and corporate-level strategies, enterprise life-cycle, corporate strategies at various stages of growth, patterns of innovation and applications, and implementation of innovation strategies.

At three o'clock in the morning on September 10, 2001, Thierry Hautillac, a risk arbitrageur, learns of the final agreement between Pinault-Printemps-Redoute SA (“PPR”) and LVMH Moët Hennessy Louis Vuitton SA (“LVMH”). After a contest for control of Gucci lasting over two years, PPR has emerged as the winner. PPR and LVMH have agreed for PPR to buy about half of LVMH's stock in Gucci for $94 per share, for Gucci to pay an extraordinary dividend of $7 per share, and for PPR to give a two and a half year put option with a strike price of $101.50 to the public shareholders in Gucci. The primary task for the student in this case is to recommend a course of action for Hautillac: should he sell his 2% holding of Gucci shares when the market opens, continue to hold his shares, or buy more shares? The student must estimate the risky arbitrage returns from each of these choices. As a basis for this decision, the student must value the terms of payment and consider what the Gucci stock price will do upon the market's open. The student must determine the intrinsic value of Gucci using a DCF model as well as information on peer firms and transactions. The student must consider potential synergies between Gucci and PPR and between Gucci and LVMH. The student must assess the likelihood of a higher bid, using analysis of price changes at earlier events in the contest for clues.

In early 2012, an equity analyst, was examining the jet fuel hedging strategy of JetBlue Airways for the coming year. Because airlines cross-hedged their jet fuel price risk using derivatives contracts on other oil products such as WTI and Brent crude oil, they were exposed to basis risk. In 2011, dislocations in the oil market led to a Brent-WTI premium wherein jet fuel started to move with Brent instead of WTI, as it traditionally did. Faced with hedging losses, several U.S. airlines started to change their hedging strategies, moving away from WTI. But others worried that the Brent-WTI premium might be a temporary phenomenon. For 2012, would JetBlue continue using WTI for its hedges, or would it switch to an alternative such as Brent?

This case could be used in entrepreneurship, strategy, and small-business courses. It presents classic issues regarding successful start-ups such as how to choose from a multitude of growth opportunities; how to pace growth so as not to dilute quality control and financial risk tolerance; and how to choose a strategic focus.

Hedge fund Magnetar Capital had returned 25 percent in 2007 with a strategy that posed significantly lower risk to investors than the S&P 500. Magnetar had made more than $1 billion in profit by noticing that the equity tranche of CDOs and CDO-derivative instruments were relatively mispriced. It took advantage of this anomaly by purchasing CDO equity and buying credit default swap (CDS) protection on tranches that were considered less risky. Now it was the job of Alec Litowitz, chairman and chief investment officer, to provide guidance to his team as they planned next year's strategy, evaluate and prioritize their ideas, and generate new ideas of his own. An ocean away, Ron Beller was contemplating some very different issues. Beller's firm, Peloton Partners LLP, had been one of the top-performing hedge funds in 2007, returning in excess of 80 percent. In late January 2008 Beller accepted two prestigious awards at a black-tie EuroHedge ceremony. A month later, his firm was bankrupt. Beller shorted the U.S. housing market before the subprime crisis hit, and was paid handsomely for his bet. After the crisis began, however, he believed that prices for highly rated mortgage securities were being unfairly punished, so he decided to go long AAA-rated securities backed by Alt-A mortgage loans (between prime and subprime), levered 9x. The trade moved against Peloton in a big way on February 14, 2008, causing $17 billion in losses and closure of the firm.

This case analyzes the strategies of the two hedge funds, focusing on how money can be made and lost during a financial crisis. The role of investment banks as lenders to hedge funds such as Peloton is explored, as well as characteristics of the CDO market and an array of both mortgage-related and credit protection-related instruments that were actively used (for better or worse) by hedge funds during the credit crisis of 2007 and 2008.

This case challenges students to apply financial reporting concepts pertaining, most notably, to liabilities and expenses in a specific corporate situation. In the context of an interesting, but noncomplex, technical accounting issue, students debate the best way for Adenosine Therapeutics to present its compensation arrangements in its financial statements. In addition, this case also prompts students to debate the best way for a growing company, with cash constraints, to provide incentive and maintain top employees.

This case raises the question: How does a company reasonably estimate and record entries for uncollectible trade receivables, and under what circumstances are receivables written off as uncollectible? The required accounting transactions for the case involve estimating a receivables allowance both as a percentage of sales and as a percentage of accounts receivable and making specific account judgments under the direct write?off method. The subjective issues involve analyzing and assessing a company's methods of collection and accounting for bad debts.

This case describes the evolution of an entrepreneur's venture-capital fund-raising from seed-stage financing through later-round efforts. The case focuses on where the “action” is in venture finance: the exploitation of social capital by an entrepreneur and investors. Much of the teaching materials on venture finance focus on the economics of financing; while these materials provide useful information about the mechanics of valuation and how to structure venture-capital agreements, they miss the social side of venture-capital investing. The case illustrates the theoretical concept that social capital (i.e., a person's relationship to other people in society) influences venture finance. The case can be used in a class on entrepreneurship or venture finance.