Case studies

Freeport-McMoRan's acquisition of Phelps Dodge created the world's largest publicly traded copper company. JPMorgan and Merrill Lynch advised the acquirer and arranged $17.5 billion in debt financing and $1.5 billion in credit facilities. In addition, these two firms underwrote $5 billion in equity capital through simultaneous offerings of Freeport-McMoRan common shares and mandatory convertible preferred shares. These financings created an optimal capital structure for the company that resulted in stronger credit ratings. The activities of the equity capital markets and sales groups at the underwriting firms are explored and the structure and benefits of mandatory convertible preferred shares is explained.

To understand the role of investment banks in advising a large corporation regarding an acquisition and related financings in the capital markets. As part of this, the activities of an investment banking firm's equity capital markets group and their underwriting risks are analyzed. Finally, the structure of a mandatory convertible security is reviewed in terms of benefits to both issuers and investors.

Executives at biotechnology firm Genzyme are debating funding a clinical trial for a new version of a medical device called Synvisc. The trial is expensive and the odds of success are not high, but the upside is substantial. The case presents a common business question: invest or not? The case forces students to think about customer insights, wrestle with a number of complex issues, and evaluate the financials of the decision.

The case is ideal for teaching financial analysis and decision making. It can also be used to teach marketing, new product strategy, and healthcare industry management.

During one of the most nerve-wracking football matches of the 2012–2013 Bundesliga season, life-long friends Franz Dully and Max Vogel begin arguing about whether the wealth of a football club determines its success during the season. In order to disprove Vogel's claim that “money scores goals,” Dully must analyze the Bundesliga's current market values, points earned, and mid-season leader data.

After analyzing the case, students will be able to compute prediction intervals, develop regression models, and interpret data. The development of the regression models asks students to choose the relevant set of independent variables, as well as determine an appropriate functional form for the regression equation. The models derived have to be evaluated as well as compared to one another. Further, the students have to interpret the quantitative findings in the context of the application.

The case focuses on the career of Gil Mandelzis, a former Wall Street investment banker who recognized and seized an opportunity to build his company, Traiana, into a successful services provider for financial institutions in the foreign exchange prime brokerage market. The case describes Mandelzis's history, beginning with his earliest entrepreneurial effort as a Tel Aviv bar owner and continuing through his decision to start Traiana. Time and again, Traiana achieved success only to be undone by unexpected, uncontrollable events. Each time, Mandelzis rebuilt the company from scratch. In one memorable instance--the one that enabled Traiana's ultimate success--Mandelzis abandoned a business plan that had created a $10 million company, fired 40 percent of his employees, and embarked on a brand-new direction. At the time the case is set, Traiana appears poised to grow into a major force in the foreign exchange prime brokerage business. Then Mandelzis receives an offer to buy the company for $164 million. The management team must either accept the offer or assume the risk that Traiana's growth will continue and its value will escalate in the coming years. For a company that has repeatedly seen unexpected events derail management's plans, taking the risk is not easy. The case posits three choices: accept the offer, reject the offer, or seek out other buyers.

Students must determine Traiana's value and advise Mandelzis how to respond to the offer. In determining its value, students learn to consider factors outside the company. The key insight in analyzing this case is understanding that Traiana's value should be seen in terms of its worth to the potential buyer rather than only using typical valuation measures such as current or projected revenues.

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.

Based on the negotiation between Google and the Chinese government to allow access by Chinese citizens to a high-speed Chinese version of the Google search engine. In order to reach agreement with the Chinese government, Google had to agree to allow the government to censor access to some sites turned up by Google's search engine. In agreeing, Google compromised its open-access policy. There were inquiries into the agreement by the U.S. Congress and some outcry from U.S. citizens.

To learn how to analyze a negotiation from the perspective of each party when one is a government and the other a private-sector organization; a subpoint here is the difference between short-term and longer-term interests. To address the difficulties of balancing business ethics and financial objectives; an important point here is to address what it means to be ethical in a for-profit business environment. To understand the long-term effects of short-term actions.

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

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

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.