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Williams--2002
by Joshua D Coval Robin Greenwood Peter TufanoWilliams, a Tulsa, Oklahoma-based firm in various energy businesses, must decide whether to accept a financing package offered by Berkshire Hathaway and Lehman Brothers. The proposed one-year credit facility would provide the firm with financial resources in a difficult period.
Susan Griffin: Formulation of a Long-Term Investment Strategy
by Dwight B. Crane Julia D. StevensSusan Griffin, owner and cofounder of a small manufacturing company, is formulating a long-term investment strategy. Griffin plans to sell her $10 million company and invest the revenue. She must decide how to allocate her investment so that she can rely entirely on investment income for her financial needs, while still maintaining a comfortable standard of living. In addition, Griffin wants to be able to offer financial help to her two children and her elderly mother.
Risk Arbitrage: Abbott Labs and Alza (B)
by Randolph B. Cohen George Chacko Marc ChennaultSupplements the (A) case.
Pension Policy at the Boots Co. PLC
by Luis M. Viceira Akiko M. MitsuiIn early 2000, the trustees of the pension scheme at Boots considered a proposal to move 100% of the pension assets into a bond portfolio, which would be passively managed. The Boots Co. PLC was a leading retailer of cosmetics and toiletries in the United Kingdom, and the company pension scheme was one of the largest in the country, with 2.3 billion British pounds in assets. If implemented, Boots would depart significantly from its prior pension investment strategy, which had been similar to that of other large U.K. pension funds. In general, such funds used external managers for active and passive portfolios of roughly 75% equities, 17% bonds, 4% real estate, and 4% cash. This unprecedented investment policy change would more closely align pension assets and liabilities and, according to long-standing academic principles of corporate pension fund management, it might also have significant effects on Boots itself, its shareholders, and other stakeholders. In making their decision, the trustees would have to consider these effects as well as the practical feasibility of such a plan.
Enron Odyssey (A): The Special Purpose of "SPEs"
by George Chacko Eli Peter Strick Bala DharanThe board has asked Ron Tolbert, an employee in the Risk Assessment and Control Group, to analyze three SPE transactions executed by Enron executives: the Destec, Rhythms, and Fishtail/Bacchus transactions, which were prominently featured in the Examiner's Report in the ensuing Enron bankruptcy. Tolbert's job is to assess why Enron used SPEs for these transactions, whether risk was successfully transferred off the balance sheet, and whether risk transfer was the only motivation.
Maverick Capital
by Chris Mcisaac Marc Ricks Andre F. PeroldMaverick Capital, a $7 billion hedge fund, faced a number of long-term strategic questions, particularly the issue of growth. With all of its assets invested with one strategy, Maverick was already managing more capital in a dedicated approach than any hedge fund in the world. How much growth could Maverick sustain? If Maverick should grow, how should it do so, and how would this choice affect Maverick's investment approach? Should Maverick take bigger positions in companies? Should it add more stocks to the portfolio? Was it time to reconsider Maverick's net long exposure to the market?
Carol Brewer's Investments
by Richard S. Ruback Julia D. StevensFollowing her husband's death in 1994, Carol Brewer took over the management of her family's investments. This case describes the decisions Brewer made during this process, including her choice to seek active account management, her selection of an investment firm, and her determination of asset allocation within her portfolio. In 2003, Brewer is reassessing her previous investment choices and considering changes she might need to make in the future in light of her plans to retire in six years and live on the income from her investments.
Dow Chemical's Bid for the Privatization of PBB in Argentina
by Mihir A. Desai Alexandra De RoyereWhat price should Dow Chemical bid for PBB, a petrochemical complex that is being privatized by the Argentine government? To answer this question, students are forced to consider the role of country risk, the underlying currency exposure of the business, and how to value an investment opportunity that has several stages. Given that it is a privatization, students are also forced to consider the political dynamics involved, the incentives of local managers, and the bidding process of a privatization. The case provides detailed cash flows and discount rate information, allowing students to conduct a thorough valuation for an emerging markets project. To obtain executable spreadsheets (courseware), please contact our customer service department at custserv@hbsp.harvard.edu.
Cross-Border Listings and Depositary Receipts
by Mihir A. Desai Kathleen Luchs Mark F. Veblen Ami Dave Maria Raga-FrancesThis case describes the varied instruments that have evolved to facilitate investments in foreign corporations, emphasizing American Depositary Receipts (ADRs) and cross-border listings. It describes the different types of ADRs and the regulatory requirements foreign corporations must meet to list their shares on U.S. stock exchanges. It examines the evolution of cross-border listings as well as recent developments, such as Globally Registered Shares. It also reviews the academic research on the motivations for cross-border listings and provides information on managerial views on the advantages and disadvantages of cross-border listings.
Foreign Exchange Hedging Strategies at General Motors
by Mihir A. Desai Mark F. VeblenHow should a multinational firm manage foreign exchange exposures? Examines transactional, translational, and competitive exposures. Describes General Motors' corporate hedging policies, its risk management structure, and how accounting rules impact hedging decisions. Although the overall corporate hedging policy provides a consistent approach to the foreign exchange risks that General Motors must manage, there are situations where the company must consider deviations from prescribed policies. Describes three such situations: large exposure to the Canadian dollar with adverse accounting consequences, GM's exposure to the Argentinean currency when devaluation is widely anticipated, and the impact of the depreciation of the Japanese yen to the dollar. To obtain executable spreadsheets (courseware), please contact our Customer Service Department at custserv@hbsp.harvard.edu
Refinancing of Shanghai General Motors (B)
by Mihir A. Desai Mark F. VeblenThis case provides the outcome to "The Refinancing of Shanghai General Motors (A)" in which the CFO of General Motors' joint venture in Shanghai, Shanghai General Motors (SGM), wants to refinance almost $900 million of project finance it raised to begin operations. The highest priority is improving the terms of the financing with regard to costs and specific covenants. Several factors complicate the CFO's objective, including the presence of capital controls, the impending entry of China into the World Trade Organization, the joint venture partner's captive finance subsidiary, and the conflicting goals of the joint venture partners. The case illustrates how subsidiary financial decisions must trade off entity-level and parent-level concerns. It also illustrates how multinational financial decision making--including transfer pricing, repatriation, and funding decisions--must be designed to accommodate governance concerns, financial objectives, and the potentially divergent interests of joint venture partners. The framework of the ongoing operational and investment decisions that Shanghai General Motors undertakes in its early growth dmeonstrates the "life cycle" of subsidiary finance. The case also touches on elements of foreign governments' attempts to regulate capital markets, the dynamic between domestic and international banks in competing for lending opportunities to multinational subsidiaries, and how subsidiary management can achieve the most desirable funding terms.
Growing Up in China: The Financing of BabyCare Ltd.
by Mihir A. Desai Mark F. VeblenThe CFO of this infant nutritional products company must choose among competing financing offers. The interplay of Chinese legal and customs restrictions and venture capitalists' bargaining techniques challenge the CFO to navigate a tricky negotiation and to devise a unique business model given these constraints. The case provides a valuation exercise and highlights some of the difficult questions a discerning venture capitalist might ask, requiring the CFO to justify his overall business model and working capital needs. To obtain executable spreadsheets (courseware), please contact our customer service department at custserv@hbsp.harvard.edu.
Refinancing of Shanghai General Motors (A)
by Mihir A. Desai Mark F. VeblenThe CFO of General Motors' joint venture in Shanghai, Shanghai General Motors (SGM), wants to refinance almost $900 million of project finance it raised to begin operations. The highest priority is improving the terms of the financing with regard to costs and specific covenants. Several factors complicate the CFO's objective, including the presence of capital controls, the impending entry of China into the World Trade Organization, the joint venture partner's captive finance subsidiary, and the conflicting goals of the joint venture partners. The case illustrates how subsidiary financial decisions must trade off entity-level and parent-level concerns. It also illustrates how multinational financial decision making--including transfer pricing, repatriation, and funding decisions--must be designed to accommodate governance concerns, financial objectives, and the potentially divergent interests of joint venture partners. The framework of the on-going operational and investment decisions that Shanghai General Motors undertakes in its early growth demonstrates the "life cycle" of subsidiary finance. The case also touches on elements of foreign governments' attempts to regulate capital markets, the dynamic between domestic and international banks in competing for lending opportunities to multinational subsidiaries, and how subsidiary management can achieve the most desirable funding terms.
Valuing a Cross-Border LBO: Bidding on the Yell Group
by Mihir A. Desai Mark F. Veblen Paolo NotarnicolaA team of private equity investors must value the leveraged buyout of a Yellow Pages business that operated in both the United States and the United Kingdom. In the process, they must wrestle with issues of how to conduct cross-border valuations and how to value a stable cashcow business along with a growth business. The case analyzes the economics and incentives of carried interest and compares different valuation methods--Capital Cash Flow and Free Cash Flow. To obtain executable spreadsheets (courseware), please contact our customer service department at custserv@hbsp.harvard.edu.
Exchange Rate Policy at the Monetary Authority of Singapore
by Mihir A. Desai Mark F. VeblenThe Monetary Authority of Singapore (MAS) is responsible for the country's monetary policy, and its decisions are intended to support the country's overall strategy for sustainable economic growth with price stability. MAS has been very successful in managing exchange rates using a managed float system, which allows more flexibility than a fixed exchange rate but less volatility than freely floating exchange rates. Following the Asian financial crisis, Dr. Khor Hoe Ee and his colleagues must decide whether to continue to manage exchange rates through the managed float or whether alternative monetary policies would be more effective in supporting Singapore's economic goals.
Drilling South: Petrobras Evaluates Pecom
by Mihir A. Desai Ricardo Reisen de PinhoThe Brazilian oil company, Petrobras, is evaluating the acquisition of an Argentine oil company, the Perez Companc Group (Pecom). The acquisition would increase Petrobras' oil reserves and expand its interests outside Brazil, a significant step for the largest company in Brazil. Pecom is for sale because it has been severely affected by the financial crisis in Argentina. Students have the opportunity to assess the impact of a severe devaluation on a company. There is also considerable uncertainty about how to value Pecom, and students must weigh the importance of country risk in determining the appropriate discount rate to use in the valuation. Finally, there is also uncertainty about Petrobras's own future as the Brazilian government has controlled it. Students are allowed to review the efficacy of changes in corporate governance implemented by Petrobras, despite its ongoing link to the Brazilian state and the associated political uncertainties of that affiliation. Students will consider different methods of valuation and the impact of politics on cross-border acquisitions. To obtain executable spreadsheets (courseware), please contact our customer service department at custserv@hbsp.harvard.edu.
Law and Legal Reasoning: An Introduction
by Henry B. ReilingGives prominence to Mr. Justice Holmes' Prediction Theory of the law as a practical--and by analogy to forecasting in finance and other functional areas of business--comfortable, and familiar way for businesspeople to think about the law. Law is defined as a forecast of what the relevant facts proving the presence or absence of those concepts or principles will turn out to be. The basis for the forecast of concepts is a hierarchy of sources beginning with statutes, followed in sequence by an assessment of case precedent and considerations of social advantage.
Antitrust Regulations in a Global Setting: The EU Investigation of the GE/Honeywell Merger
by Mihir A. Desai Belen Villalonga Mark F. VeblenHelps students understand the principles underlying competition and antitrust policy in the context of the proposed GE-Honeywell merger. The U.S. Department of Justice has already approved the transaction and it is being considered by the European Commission. The Competition Commissioner, Mario Monti, must analyze the economic consequences of the proposed merger and evaluate how it will affect competitors, customers, and product markets. He must also address key policy choices. In understanding the nuances of the transaction, students identify different sources of value and must confront the question of whether the efficiencies generated enhance social welfare in the long run. The decision of whether to approve the merger, and on what terms, provides students with insights into the complexities of operating under multiple regulatory regimes.
International Rivers Network and the Bujagali Dam Project (A)
by Benjamin C. Esty Aldo SesiaIn the summer of 2002, the International Rivers Network (IRN), an environmental NGO located in Berkeley, California, was engaged in what appeared to be the last hours of a three year campaign to stop a $582 million dam and hydropower project at Bujagali Falls in Uganda. The final piece of the financing puzzle was about to be put in place as the World Bank was set to approve a $250 million loan guarantee for the project. Although the project would have some adverse environmental and social impacts, IRN contended that the power deal between the government of Uganda and AES was the real problem. As IRN saw it, the cost of the project was too high and Ugandans would bear most of the risk, which would add to the country's debt burden. However, without the power purchase agreement, which remained undisclosed despite requests for it to be made public, IRN had little economic data on the project to bolster its argument. Still, there were compelling reasons, such as economic development and poverty alleviation, for the Ugandan government to go ahead with the deal it had with AES, the project sponsor. AES, with its social mission and reputation for delivering low-cost energy to the world, seemed like the ideal sponsor.
STMicroelectronics N.V., 2003 Convertible Bond Offering
by William E. FruhanFocuses on the valuation of a complex option embedded in a convertible debenture with a negative yield to maturity.
Basel II: Assessing the Default and Loss Characteristics of Project Finance Loans (B)
by Benjamin C. Esty Aldo SesiaSupplements the (A) case.
Ottawa Devices, Inc. (A)
by Harry C. Midgley Henry B. ReilingA master plan accommodating two retiring brothers, the brother who will remain as president, third-generation family members, employees, philanthropic interests, and company imperatives must be developed by second-generation brothers who are controlling shareholders and senior management team members. This case reviews several estate planning concepts the family implemented and asks the student to formulate an optimal plan for transferring control of the company while reconciling conflicting interests.
Globalizing the Cost of Capital and Capital Budgeting at AES
by Mihir A. Desai Doug SchillingerWith electricity generating businesses around the world, AES Corp. is seeking a methodology for calculating the cost of capital for its various businesses and potential projects. In the past, AES used the same cost of capital for all of its capital budgeting, but the company's international expansion has raised questions about this approach and whether a single cost of capital adequately accounts for the different risks AES faces in its diverse businesses and diverse environments. The company recently suffered heavy losses from currency devaluations in South America and regulatory changes in other countries. The director of the corporate planning group is developing a methodology for taking account of different country and project risks, and the case allows students to use this methodology to calculate the cost of capital for 15 different projects around the world. Students must consider how a global firm can account for differing risks in evaluating its international operations and in investing abroad. To obtain executable spreadsheets (courseware), please contact our customer service department at custserv@hbsp.harvard.edu.
Jeepers! Inc. in 2000
by Nabil N. El-HageAfter the company's IPO is withdrawn, the company enters a period of severe financial distress. The consultants recommend that the company be liquidated. The CEO must convince the board, the lenders, and the landlords that the company can and should be saved.