Case studies

This case and its companion, “Myerson Industries” (UVA-QA-0299), constitute the materials for a negotiating exercise. The exercise is a distributive-bargaining situation surrounding the negotiation of the price for the construction of a building (some minor opportunities exist for creating mutual value).

The managing director of a steel plant faces the decision of how much of each raw material to order for the plant for the following month. Due to lower and upper bounds on the amounts of each raw material in a batch and varying amounts of electricity and time consumed for different raw materials, one can't simply use the cheapest raw material. A linear program and the solver optimization function of Excel will provide the optimal amounts that meet the constraints. Interestingly, the best mixture for a batch is not the best mixture for a monthly plan. Shadow prices indicate the value of relaxing constraints. The typical monthly model from a student will be nonlinear, although it can be written as a linear model. This case provides the basis for an introductory class on linear programming and linear versus nonlinear models.

This case may be taught singly or used as a merger-negotiation exercise with “Daimler-Benz A. G.: Negotiations between Daimler and Chrysler” (UVA-F-1241). Set in February 1998, the case places students in the position of negotiators for the company; their task is to value both firms, assess the potential earnings dilution of a combination, and negotiate a detailed agreement with their counterpart. The case can be used to explore such interesting negotiation issues as determination of a share-exchange ratio, treatment of major stockholders, and structuring a deal. Also, the case and exercise can be used to spark a discussion of acquisition in comparison with strategic alliance, or other less formal models of combination.

This case is a vehicle for discussing the theory and practice of option pricing through the valuation of warrants of Chrysler held by the U.S. government and of the loan guarantee provided by the U.S. government to Chrysler.

Lilly ICOS is preparing to launch Cialis, a prescription drug that treats erectile dysfunction, and executives must decide how to position Cialis against market leader Viagra and recent entrant Levitra.

Acting as chief financial officer (CFO), students try to determine how Coleco can fend off creditors. Coleco is in default on its loans and is in a negative equity position.

In December 2001, after a six-month process of vying for AT&T's Broadband, the president of cable operator Comcast Corporation, had just received word that Comcast's $72-billion offer had won the auction. Comcast, the cable industry's third-largest operator, would merge with industry leader AT&T Broadband to form a company with more than $20 billion in revenue and an unparalleled distribution (a presence in 22 of the nation's top 25 markets). Now the presidents of both companies began to consider their post-merger integration strategies. What was important and how should they prioritize their activities? How could they get all stakeholders to understand the rationale for the deal and its business goals and excited about the new AT&T Comcast?

In early September 2008, in the midst of the subprime crisis, a manager with the student-run Darden Capital Management fund, wants to evaluate whether Comerica Incorporated, a regional bank based in Dallas, Texas, is a good candidate for inclusion in his portfolio. He needs to perform a valuation of the bank to assert whether the bank seems to be undervalued by the market or whether a further decline in value might be possible. He must account for all the factors that affect bank valuation, both as related to the bank itself as well as to the current market conditions. The case can be taught to: a) examine the valuation of a bank during turbulent times; b) understand the key accounting statements (balance sheet and income statement) for a bank and how they may differ from those for an industrial company; and c) understand the key value drivers of bank value (metrics for profitability, credit quality, liquidity, and capital).

The cofounder of Compass Records, a small, independent music-recording company, must decide whether to “produce and own” the next album of an up-and-coming folk musician or simply “license” her finished recording. This case presents information sufficient to build cash-flow forecasts for either investment alternative. Discounted cash flow (DCF) analysis reveals that licensing will be the more attractive alternative unless the student assesses the value of the options for follow-on albums included in the “produce-and-own” contract.

In February 1994, the senior management team at Continental Cablevision received the final joint-venture agreement from Fintelco, a potential partner in Argentina. The tasks for the student are to review the terms of the agreement, the outlook for the Argentine economy, and the corporate cultures at both companies to decide whether Continental should sign the agreement.