Case studies

Aurelia Dimas had been sent to investigate the various properties being offered by the State of California in the form of a sale-leaseback agreement. The opportunity was perfect for her firm, Orrington Financial Partners, which had recently expanded its fixed-income portfolio to include real estate. The wide range of offerings in the Golden State Portfolio provided both diversification and stability over a period of decades. She had spent the last week walking the halls of each and every building to see the offering first hand. Now the task of valuing the portfolio rested on her shoulders.

By reading and analyzing this case, students will be exposed to real estate valuation and understand the issues with a sale-leaseback investment. The objectives are obtained by requiring students to justify how and why they make adjustments to the cash flow forecasts provided to them by a real estate advisory firm, explain their methodology for arriving at a specific value for a piece (or a portfolio) of commercial property, and debate the pros and cons of a sale-leaseback structure.

At the end of 2011, one of the largest food retailers in Brazil, Grupo Pão de Açúcar, or GPA (a subsidiary of Companhia Brasileira De Distribuição, or CBD), was reviewing its accounts payable terms with suppliers in search of additional value. Manager of analytics Maria Cristina Santos was examining the trade credit terms GPA had with Oalem Ltda, a family-owned melon grower located in northeastern Brazil. Oalem, like most small family businesses, was financed with bank loans and equity that was held predominantly by the family. The case examines how accounts payable (trade credit) terms should be set or negotiated between a large retailer and a small supplier, especially when the bargaining power between the two may not be equal. The case demonstrates that trade credit terms can be as important as the terms of more traditional forms of financing.

After analyzing and discussing the case, students should be able to:

• Determine when it is efficient or value-increasing for one nonfinancial firm to borrow from another nonfinancial firm through trade credit, as opposed to borrowing from financial institutions (e.g., banks) or financial markets

• Understand how competition or relative bargaining power can influence feasible and optimal trade credit terms

• Explain why trade credit can be a cheaper form of financing than the alternative forms of financing available to small family businesses like Oalem Ltda

Determine when it is efficient or value-increasing for one nonfinancial firm to borrow from another nonfinancial firm through trade credit, as opposed to borrowing from financial institutions (e.g., banks) or financial markets

Understand how competition or relative bargaining power can influence feasible and optimal trade credit terms

Explain why trade credit can be a cheaper form of financing than the alternative forms of financing available to small family businesses like Oalem Ltda

During December 2012, Jorge Paulo Lemann, a co-founder and partner at 3G, proposed to Warren Buffett that 3G and Berkshire Hathaway acquire H. J. Heinz Company. Lemann and Buffett, who had known each other for years, jointly decided that the Heinz turnaround had been successful and that there was significant potential for continued global growth. 3G informed Heinz CEO William Johnson that it and Berkshire Hathaway were interested in jointly acquiring his company. Johnson then presented the investors' offer of $70.00 per share of outstanding common stock to the Heinz board.

After much discussion, the Heinz board and its advisors informed 3G that without better financial terms they would not continue to discuss the possibility of an acquisition. Two days later, 3G and Berkshire Hathaway returned with a revised proposal of $72.50 per share, for a total transaction value of $28 billion (including Heinz's outstanding debt).

Following a forty-day “go-shop” period, Heinz, 3G, and Berkshire Hathaway agreed to sign the deal. But was this, in fact, a fair deal? And what might be the future consequences for shareholders, management, employees, and citizens of Pittsburgh, the location of the company's headquarters? Last, what was the role of activist investors in bringing Heinz to this deal stage?

After reading and analyzing the case, students will be able to:

• Understand the influence of investment bankers on M&A transactions

• Consider synergies that drive M&A

• Consider the role of activist investors in corporate strategic decision-making

• Understand the impact of M&A on key corporate stakeholders

• Apply core valuation techniques to support M&A valuation

Understand the influence of investment bankers on M&A transactions

Consider synergies that drive M&A

Consider the role of activist investors in corporate strategic decision-making

Understand the impact of M&A on key corporate stakeholders

Apply core valuation techniques to support M&A valuation

In July 2007, Mark-Hans Richer became Harley-Davidson's first chief marketing officer. Its riders were aging, which the company saw as an existential threat. Although Harley-Davidson had a record sales year in 2006 and had maintained a commanding share of the heavyweight motorcycle market for the previous decade, it needed to take new action to sustain its growth.

Richer needed to deliver a new generation of riders and a more diverse customer base, all without losing current Harley-Davidson customers. He also knew that he could not relax: the average tenure of a CMO in 2007 was only 27 months and a complete new product development cycle would take a minimum of four years.

After analyzing the case, students should be able to:

• Recommend marketing decisions for a brand with extremely high loyalty in light of various consumer behavior indicators gleaned from market research

• Understand the power of leveraging existing assets as opposed to innovating new products

• Understand the psychological basis of customer loyalty, including drivers and metrics of loyalty

Recommend marketing decisions for a brand with extremely high loyalty in light of various consumer behavior indicators gleaned from market research

Understand the power of leveraging existing assets as opposed to innovating new products

Understand the psychological basis of customer loyalty, including drivers and metrics of loyalty

The case puts students in the shoes of Todd Davis, founder and CEO of a boutique brownfield redevelopment firm, Hemisphere Development, in 2010. Davis is wrestling with decisions and processes surrounding the potential acquisition and redevelopment of the former Delphi Automotive plant in Columbus, Ohio. When making the investment decision, Davis (and students) must consider various factors: What is Hemisphere's implicit investment strategy, and what are the firm's core competencies? How should the firm finance this transaction to achieve an acceptable return?

• Practice creatively structuring and financing unique transactions

• Describe the importance of baseline analysis in dealing with contaminated or potentially contaminated properties, and understand that the timing of baseline analysis can be crucial in determining the viability of a transaction

• State the importance of each type of constituent in public-private transactions

• Recognize the benefits of specialized/niche expertise in deal-makin

Practice creatively structuring and financing unique transactions

Describe the importance of baseline analysis in dealing with contaminated or potentially contaminated properties, and understand that the timing of baseline analysis can be crucial in determining the viability of a transaction

State the importance of each type of constituent in public-private transactions

Recognize the benefits of specialized/niche expertise in deal-makin

Rede Alta Velocidade, SA (RAVE), the state-owned company responsible for planning and developing a major high-speed rail project in Portugal, must persuade both public officials and lenders that the project is worth undertaking. It must also make a recommendation on the appropriate organizational form for the enterprise. Specifically, it must determine the role of the Portuguese government in financing and operating the high-speed rail network, with options ranging from full development and management of the project by the public sector to completely private development and management. Lying in between these two polar cases were a variety of hybrid models, often referred to as public-private partnerships (PPPs). Using data in the case, students have the opportunity to perform a benefit-cost analysis of the project. They also must think carefully about the optimal role of the government in a major new infrastructure project.

After analyzing and discussing the case, students will be able to:

• Understand the nature of a global public good

• Perform a back-of-the-envelope benefit-cost analysis of polio eradication

• Discuss the appropriate strategy for eradicating an infectious disease

• Apply game theory to analyzing which countries would be likely to contribute funds toward global polio eradication

• Discuss the role of private organizations in the provision of global public goods

Understand the nature of a global public good

Perform a back-of-the-envelope benefit-cost analysis of polio eradication

Discuss the appropriate strategy for eradicating an infectious disease

Apply game theory to analyzing which countries would be likely to contribute funds toward global polio eradication

Discuss the role of private organizations in the provision of global public goods

This exercise is one in a series intended to help students learn how to perform financial calculations in marketing contexts.

Helmut Schmidt, product manager for Hohner Musikinstrumente GmbH & Co. KG, the world's foremost manufacturer of harmonicas, accordions, melodicas, and ukuleles, was sitting at his desk reviewing his first assignment from the company's senior executive team. Schmidt had been asked to calculate the break-even point for the company's flagship product, the Marine Band harmonica, under a number of different scenarios.

After completing the exercise, students should be able to:

• Calculate unit contribution and margin

• Calculate break-even units and market share

Calculate unit contribution and margin

Calculate break-even units and market share

Wall Street hedge fund manager Kim Meyer is considering investing in an SFA (slate financing arrangement) in Hollywood. Dave Griffith, a Hollywood producer, is pitching for the investment and has conducted a broad analysis of recent movie data to determine the important drivers of a movie’s success. In order to convince Meyer to invest in an SFA, Griffith must anticipate possible questions to maximize his persuasiveness.

Students will analyze the factors driving a movie’s revenue using various statistical methods, including calculating point estimates, computing confidence intervals, conducting hypothesis tests, and developing regression models (in which they must both choose the relevant set of independent variables as well as determine an appropriate functional form for the regression equation). The case also requires the interpretation of the quantitative findings in the context of the application.

The Hotel Perennial case puts students in the shoes of Dan Jameson, founder and CEO of a boutique real estate private equity firm called EL Investments (ELI), as he wrestles with the decision of whether or not to acquire the distressed Hotel Perennial, a 194-room hotel on the north side of Chicago, Illinois. When making the investment decision, Jameson (and students) must consider various factors: What is ELI's implicit investment strategy, and what are the firm's core competencies? What are Jameson's goals for growing ELI, and how might the acquisition of the Hotel Perennial fit with those goals? What opportunities and challenges might ELI face if it decides to acquire the hotel? How much would a buyer likely have to pay for the Hotel Perennial to achieve an attractive return? In addition to containing a hotel valuation and modeling exercise, the Hotel Perennial case also exposes students to several real estate industry concepts and terminologies, including those regarding the hotel sector, equity sourcing, and distressed investing. The case material assumes that students have taken an introductory real estate finance course or have relevant work experience.

-Show students how an investment decision can go beyond simply “crunching numbers” and projecting an internal rate of return to include considering an individual's or firm's strategic objectives and core competencies. Students should think through how to

Hewlett-Packard (HP) had a long history of engaging in corporate citizenship, dating back to its founding. By 2009, however, under the leadership of its latest CEO, Mark Hurd, the company had lost its focus on corporate social responsibility (CSR). Hurd instead focused on undertaking a financial turnaround and overcoming other reputational challenges; he viewed CSR and philanthropic efforts as costs rather than as strategic levers. He instituted widespread cost-cutting measures to get HP back on track, including reducing CSR expenditure. The HP board, however, did not want to let CSR go by the wayside; in fact, it wanted HP to reorganize and restrategize its approach to corporate citizenship.

The case focuses on this strategic transformation from traditional, cost-center CSR to business-aligned social innovation. It outlines the details of the board's approval of the new strategy, and then discusses how HP employees worked to reorganize their CSR activity. The new team, the Office of Global Social Innovation (OGSI), had to devise a pilot project to demonstrate the new approach. The project under consideration was an engagement that would improve the early infant diagnosis process for testing infants for HIV in Kenya—an area virtually unknown to HP. The case asks students to assess the work of the OGSI team thus far, and to put themselves in the shoes of one team member who had to justify the project to HP's leadership.

The case is especially important for demonstrating the most recent shifts across some leading companies regarding how they position CSR, as well as how for-profit leaders can structure partnerships for impact.

After reading and analyzing the case, students will be able to: understand current shifts from traditional corporate social responsibility work to social innovation; understand the challenges facing leading companies as they seek to do well (enhance the company's bottom-line performance) by doing good (making social impact); identify best practices for developing partnerships for impact; articulate a project's social impact and how it aligns with a desirable business impact.