Corporate Finance
This course explores how firms allocate, manage, and invest financial resources to create and sustain shareholder value.
The first part of the course focuses on financial management and how firms use financial resources to support corporate strategy, reduce risk, and maximize value for shareholders. Case studies will examine companies experiencing rapid growth, plus the risks of such financial strategy and its sustainability.
The course then turns to how firms create value with mergers, acquisitions, and corporate restructuring.Through a series of cases and lectures, we explore what makes these actions successful, how some corporate actions may destroy value, and what insights can be gleaned that will help participants create and realize value for their own firms.
- Tools to evaluate and model the financial performance of firms
- An understanding of cash flow requirements and the levers of control available to executives
- An understanding of the relationship between capital structure, valuation, risk, and financial performance
- Insights into how mergers and acquisitions can successfully add value, and where they often go wrong
- Case of the Unidentified Industries. This case is a classic introduction to corporate finance. By looking at a large number of financial ratios, participants are asked to identify various companies and their industries. This creates a powerful mechanism for participants to relate financial indicators to real-world attributes of the businesses in question.
- Butler Lumber Co. The Butler Lumber Co. is faced with a need for increased external financing due to its rapid sales growth and marginal profitability. Participants must determine the reasons for the rising financing need, estimate the amount of financing needed, and assess the attractiveness of the loan to the bank. Allows students to practice ratio analysis, financial forecasting, and evaluating financing alternatives.
- Tire City. A small, rapidly growing retail distributor of automotive tires must present a set of forecasted financial statements to a bank in order to obtain a five-year loan. Expected growth rates given in the case and historical financial ratios derived from recent financial statements are used to forecast pro-forma income statements and balance sheets for the next two years.
- Arley Merchandise Corp. This case involves the initial public offering of a firm's stock. The offering includes a money-back guarantee to investors from the issuing firm — which comes in the form of a "put" option. Encourages participants to question certain aspects of financial product innovations.
- Aurora Capital Group: Douglas Dynamics. Aurora Capital, a U.S. private equity firm, contemplates whether to acquire Douglas Dynamics, the leading U.S. maker of snowplows. Does a business that is seasonal and highly dependent on the weather make a good leveraged buyout candidate? What are the characteristics of a successful leveraged buyout? How do successful private equity firms create value by acquiring such companies?
- Ashanti Goldfields Company Limited. Ashanti must decide whether to proceed with a $150-million investment in a Tanzanian mining project. We review the sort of risk management that a firm should engage in before making such a commitment. And we explore how such risk management activities could backfire.
- Adecco SA’s Acquisition of Olsten Corp. In the summer of 1999, Adecco SA, one of the world's leading staffing companies, was in the midst of attempting to acquire the staffing operations of Olsten Corp., a U.S. firm. This case analyzes the economics of the staffing industry, basic valuation, cross-border issues including tax arbitrage, valuation of minority interest, and the importance of financial health in merger negotiations.
- Consolidated Equipment Co. A mature company seeks to rejuvenate itself with internal R&D and/or external acquisitions. It has developed a model for analyzing the value of a proposed acquisition.
- Berkshire Partners: Purchase of Rival Company. Berkshire Partners, a private equity firm in Boston, was pleased with their recent investment in the Holmes Group, a home comfort consumer electronics company. The portfolio company was exceeding key financial targets and Berkshire Partners was confident that it would be another successful investment. Holmes' management team then suggested acquiring a kitchen electronics company, the Rival Company. The management of Holmes believed that Rival would complement their existing portfolio of products and it was the perfect time to buy due to a depressed stock price caused by declining earnings. The investment team at Berkshire now had to decide if the possible returns from an investment in Rival were enough to risk the successful investment in Holmes, or if Rival could be acquired without risking Berkshire's investment in Holmes.
- Sealed Air Corp.'s Leveraged Recapitalization. Less than a year after Sealed Air embarked on a program to improve manufacturing efficiency and product quality, the company borrowed almost 90% of the market value of its common stock and paid it out as a special dividend to shareholders. Management purposefully used the leveraged recapitalization as a watershed event, creating a crisis that disrupted the status quo and promoted internal change, which included establishing a new objective, changing compensation systems, and reorganizing manufacturing processes.
- Williams – 2002. Williams, 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.
- Jeepers! Inc. – 2000. After the company's IPO is withdrawn, it enters a period of severe financial distress. Consultants recommend that the company be liquidated. The CEO must convince the board, lenders, and landlords that the company can and should be saved.