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This case can be used as a capstone valuation exercise for first-year MBA students in an introductory finance course. A senior associate in the business development group at American Cable Communications, one of the largest cable companies in the U.S., must prepare a preliminary valuation for acquiring AirThread Connections, a regional cellular provider. The acquisition would give American Cable access to wireless technology and the wireless spectrum and enable the company to offer competitive service bundles including wireless, currently a hole in the company's service offering. Students learn the basic valuation concepts including DCF (discounted cash flow) using APV (adjusted present value) and WACC (weighted average cost of capital) and they must choose the appropriate approach for situations in which the capital structure is changing or assumed to be constant. Students must consider the effect of constant debt versus the D/V (debt-to-value ratio) in estimating betas and the costs of capital. In addition, students analyze the effects of non-operating assets on valuation. As an additional assignment, instructors can require students to consider the personal tax disadvantage of debt as well as the synergies American Cable expects to achieve following the acquisition.
Presents a comprehensive review of the valuation methods based on discounting cash flows or value creation metrics and shows, through simple example and a straightforward "how-to-do" framework, the perfect consistency and identity of their results under similar assumptions.
Whether you are buying or selling a global corporation, an operating division, a local restaurant, or a share of stock, one question outweighs most others: What is its value? Valuing an ongoing business is neither easy nor exact. This chapter introduces you to the three most commonly used methods for determining value and helps you determine which method is right for your business need.
This case explores the decision-making process that small, private businesses must undertake when considering an expansion and when selling equity to outside investors. In the process, students are asked to complete two exercises: a break-even analysis and a valuation exercise.
A set of five exercises in valuation of simple fixed income securities. No capital budgeting. Students use present value analysis to compute discounted cash flows. Situations/concepts covered include: future value; mortgage payment and repayment; calculating implicit interest rate on loan, yield to maturity on bond; bond pricing, to include rate sensitivity, Eurobonds, conversion of bond-equivalent yield to effective annual yield, and Japanese yields; growing versus fixed retirement annuities.
A Valuable Chain: Real World Strategies for Analyzing the Value Chain, Applying the VRIO Framework (Resource Based View), and Recognizing Core Competenciesby Jay Barney Patricia Gorman Clifford
"What I Didn't Learn in Business School" invites readers to follow new consultant Justin Campbell as he joins an elite team hired by a chemical firm to assess the potential of a newly developed technology. To this point Justin has struggled with translating his MBA knowledge into real-world application, but he's finally starting to see how theories and frameworks, like VRIO (Valuable, Rare, Imitable, and Organization), can have real-world impact. In this chapter, authors Jay B. Barney and Trish Gorman Clifford take you into the world of this fictional consultant as he evaluates his client's value chain and identifies its sources of core competence using the VRIO framework. This chapter was originally published as Chapter 5 of "What I Didn't Learn in Business School: How Strategy Works in the Real World."
The Valhalla Partners venture capitial firm introduced a new approach to the due-diligence process. An internal due-diligence report analyzes Telco Exchange, a startup company in the IT software space. An extended excerpt examines the trade-offs involved in the new due-diligence process and whether Valhalla should invest in Telco Exchange.
Valero Energy, an incredibly successful US refiner, needs to make some decisions about tight oil. As production of light tight oil increases-from Eagle Ford, Bakken and elsewhere-Valero considers whether to add topping capacity to handle it, on top of its recent investments for heavy oil. Political decisions, however, are pending on Keystone XL, on crude oil exports, and on LNG exports. Prices, therefore, are up in the air, especially as global capacity increases. Petrochemical companies and oil producers have conflicting views on the appropriate policy. Bill Klesse, the CEO, can either sit back and wait, or move to capture greater market share.
In 2009 the management of Vale, a Brazilian diversified mining company and the largest iron ore producer in the world, was under pressure from at least two fronts. First, the emergence of China as the most important consumer of iron ore in the last few years had changed the pricing system for iron ore from long-term contracts based on negotiated "benchmark prices" to contracts based on spot prices, usually forcing mining companies to pay for shipping. Second, for Brazil's charismatic president, Lula, a former union leader, Vale's layoffs during the global financial crisis and its perceived move away from Brazil (as Vale increased its exports to China and purchased Chinese vessels to ship iron ore to Asia) were reasons to start an open campaign to pressure Vale and Agnelli to invest in integrated steel mills in Brazil. In October of 2009, the CEO of Vale, Roger Agnelli was going to meet with Lula and had to decide what to do to attenuate these political pressures. What could Agnelli do to deal with political pressures at home? Was the purchase of large vessels to ship iron ore to Asia a good decision at a time when the shipping industry had spare capacity?
Describes a potential trans-Atlantic merger between two young companies in the Internet space. VacationSpot.com, based in Seattle, and Rent-A-Holiday, based in Brussels, both offer online listings and reservations for independent leisure lodging (i.e., villas, apartments, and bed and breakfast places) around the world. Both companies were started in 1997. At the time of the case (April 1999), the two companies are world-market co-leaders and discussing a merger. While the lodging inventory of both companies is very similar, their most recent post-money valuations have a ratio of approximately 9:1. Merger negotiations have come to a standstill over the valuation issue. Both sides need to decide whether to restart negotiations and what terms to propose.
Anne Ewers, general director of Utah Opera, is awaiting the decision of the members of the board of the Utah Symphony and Utah Opera about whether to merge Utah's top two arts organizations. If the vote favors the merger, Ewers will be asked to assume the helm of the newly created organization and take responsibility for integrating the two organizations. Challenges students to consider the merits of the merger and to develop an action plan for how Ewers would integrate the two organizations, including how to design the new firm, how to manage various constituents--many of whom are upset by the announcement--and how to create a new corporate culture. Students also need to specify what Ewers would do in the first few days if the vote were to favor merging the two organizations. Teaching Purpose: To explore the human capital issues related to mergers and acquisitions.
A large diversified steel and energy firm is pressured by a corporate raider to spin off its steel business in order to increase its stock price. As an alternative to the spinoff, management proposes replacing the company's common stock with two new classes of "targeted" stock that would represent separate claims against each business segment's cash flows, allowing the stock market to value each business separately (and more accurately).
Supplements the (A) case.
Describes the evolution of USA TODAY Online, the electronic version of the newspaper, within the organizational structure of the newspaper. Describes the tensions and issues that develop and the pressure from the Online division to be spun off. At the same time, CEO Tom Curley sees a greater strategic need for integration. Poses the question of what degree or type of strategic integration is required, what degree of organizational integration this implies, and how it can be achieved.
This two-part case series describes how the option of launching USA Today was defined and evaluated by the Gannett Corp. This case supports a broad discussion of whether the concept of a national, general interest daily fits with the changing external environment and Gannett's internal resources and capabilities; it also allows specific analysis of the economics of the proposed venture.
Using Transparency to Execute Your Strategy: Open Up Your Business for Scrutiny--Laying the Groundwork for Building Sustainability into Strategyby Adam Werbach
Transparency is more than just a way to comply with legal responsibilities; it's how you attract societal resources to solve them. Sharing information openly with your constituents will open your business for ideas and innovations from every crack and crevice of your organization. By systematically measuring and reporting on your own sustainability, you will engage everyone--from your employees to your customers to your suppliers to your critics--in the process of building a truly sustainable enterprise. This chapter outlines the phases your organization must travel through to achieve greater transparency--a necessary step on the journey to building sustainability into core business strategy. This chapter was originally published as chapter 4 of "Strategy for Sustainability: A Business Manifesto."
This chapter identifies the web of relationships inherent in any business, and explains how managers can structure contracts to define and strengthen relationships by increasing predictability, allocating risk and reward, creating and retaining options, and aligning incentives.
Links two very useful pieces of management research--resource allocation processes as studied by Bowen and Burgelman and the aggregate project plan expounded by Wheelwright and Clark.
Describes how activity-based costing (ABC) should be applied with: 1) budgeted, not historical, expenses and 2) assigning the costs of capacity resources.
Describes applying activity-based costing to manage customer relationships. Links cost-to-serve to net margins earned with individual customers.
Deals with CEO Bill Foote's decision of how to deal with USG's exposure to asbestos liability. USG was the largest building materials company in the United States, with 14,000 employees and gross revenues of $3.8 billion. Although USG used asbestos in a small subset of its products (and never in its SHEETROCK), as more companies that were heavy users of asbestos went bankrupt, USG was faced with shouldering the burden of the entire building materials industry. USG was otherwise a solvent, growing company. Bankruptcy was an option, but a successful reorganization was by no means assured. How would USG keep its highly motivated (and nonunionized) workforce and continue to attract top managerial talent? Would there be any value left for the shareholders? In the Johns Manville bankruptcy, shareholder equity was wiped out entirely.
In 1988, USG was the world's largest gypsum producer and one of the world's largest building-products companies. On May 2, 1988, USG's board of directors announced a proposed leveraged recapitalization plan to thwart a hostile cash tender offer by Desert Partners. With only one week remaining before the tender offer was scheduled to expire, shareholders must decide whether to tender their shares or wait and vote in favor of the recapitalization plan.
A major challenge of creating business strategy is to develop organizational structures that will help overcome the parochialism and power of silo groups. Organizational structures and processes need to be developed that will create silo linking, whereby people can enhance cross-silo information flow and develop and implement programs across silos. This chapter discusses a variety of devices available for firms to forward silo linking, including teams, informal and formal networks, matrix organizations, and centralized marketing groups.
Select your format based upon: 1) how you want to read your book, and 2) compatibility with your reading tool. To learn more about using Bookshare with your device, visit the Help Center.
Here is an overview of the specialized formats that Bookshare offers its members with links that go to the Help Center for more information.
- Bookshare Web Reader - a customized reading tool for Bookshare members offering all the features of DAISY with a single click of the "Read Now" link.
- DAISY (Digital Accessible Information System) - a digital book file format. DAISY books from Bookshare are DAISY 3.0 text files that work with just about every type of access technology that reads text. Books that contain images will have the download option of ‘DAISY Text with Images’.
- BRF (Braille Refreshable Format) - digital Braille for use with refreshable Braille devices and Braille embossers.
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- DAISY Audio - Similar to the Daisy 3.0 option above; however, this option uses MP3 files created with our text-to-speech engine that utilizes Ivonas Kendra voice. This format will work with Daisy Audio compatible players such as Victor Reader Stream and Read2Go.