In February 2021, Scott Sheffield, the CEO of Pioneer Natural Resources (an independent oil and gas company based in Texas), was considering the possibility of enhancing the firm's capital return strategy by introducing a variable dividend tied to cash flows in addition to the firm's base dividend as a way to distribute more cash to shareholders when performance was good and cash flows were high. Although oil prices had fallen precipitously to less than $20 per barrel in early 2020 due to the recession caused by the Covid pandemic, they had rebounded to more than $60 per barrel in February 2021. As a result, exploration and production (E&P) companies including Pioneer were expected to generate significantly higher profits in 2021, prompting many firms to consider ways to distribute excess cash to shareholders. Sheffield had to decide whether to adopt a new "base plus variable" dividend policy. As part of that decision, he had to decide whether it was materially different from and better than a policy with a growing base dividend supplemented with periodic share repurchases. And if he did decide to recommend a new policy to the board of directors, he had to determine the magnitude and the frequency of the variable dividend.
Yellow Corporation, one of the country's oldest and largest less-than-truckload (LTL) carriers, was nearing its 100th anniversary in 2024. Whether it would reach that milestone, however, was uncertain as the company was attempting to restructure its operations to become more competitive and refinance $1.3 billion of debt that was coming due in the next year. With just $100 million of cash on its balance sheet in June 2023, some kind of financial restructuring was needed to keep the company afloat. Unfortunately, the company's relationship with the Teamsters, the union that represented two-thirds of its 30,000 workers, was deteriorating rapidly. The situation became even worse after Yellow skipped a $50 million payment for worker benefits and pension obligations on July 15, prompting the Teamsters to threaten a strike at the end of the month. Having helped save the company from three "near death" experiences in the past 15 years, the union was in no mood to make further concessions. For Yellow CEO Darren Hawkins, the questions were whether and how he could convince union members to make further concessions, and what changes he needed to make to avoid bankruptcy one more time.
In July 2019, Graphic Packaging CEO Michael Doss was proposing a $600 million investment in a new machine to produce coated recycled board (CRB), a type of paper packaging used for consumer products (cups, cereal boxes, beverage boxes, etc.) that utilized recycled paper as an input. Graphic Packaging was an integrated producer of paperboard packaging for consumer products and the market leader in CRB. What made this decision difficult was that for the past 30 years, plastic packaging had been replacing paper packaging because of cost and ease of manufacturing. Yet a growing interest in environmental sustainability among paperboard manufacturers, consumer goods companies (immediate customers), and consumers (end users) was creating the possibility of a transition from plastics back to paper-based products. If these trends actually materialized, there would be greater demand for CRB mills that could use recycled inputs and create recyclable products. Was this the right time for a capacity neutral investment (GPK planned to shut older plants when the new one came online) particularly when the sustainability trends were still unclear. By closing older, less efficient mills in favor of a newer, larger, and more efficient machine, GPK could save $100 million per year in costs. In short, this decision had a clear economic benefit as long as sustainability trends continued, competitors did not add new or more efficient capacity, and GPK actually removed existing capacity once the new machine was operational.
At 11:33am on May 24, 2022, an 18-year-old man from Uvalde, Texas walked into the Robb Elementary School carrying a semi-automatic "AR-15-style" rifle manufactured by Daniel Defense and killed 19 children and two adults. Three days later, Representative Carolyn Maloney (D-NY), Chair of the House Oversight Committee, sent a letter to Marty Daniel, the CEO of Daniel Defense, requesting information for a Congressional hearing to be held on June 8. Daniel must now respond to the request for information on his firm's marketing practices, gun sales, and profitability; prepare for Congressional testimony; and decide whether to change any of his company's business practices (e.g., the products it sold and the way it marketed them). Daniel also had to decide whether to support new calls for gun control legislation or continue resisting all attempts to restrict Second Amendment rights to gun ownership. At a higher level, this case explores the legal, ethical, and moral responsibilities companies have, if any, for the criminal misuse of their legally manufactured and legally sold products.
On March 10, 2021, Ralph Mupita the new CEO of MTN Group, Africa largest telecommunications company, presented the group's 2020 annual results and unveiled a new strategy to "drive growth and unlock value." Despite MTN's leadership in most of its markets, the company's share price was trading at 15-year lows putting Mupita under pressure to accelerate a turnaround. The case considers his plans to execute against the new strategy by spinning off MTN's fintech business and creating more shared value in its markets while at the same time building valuable technology platforms and delivering industry-leading connectivity. Could MTN's leadership team achieve all four priorities within five years as promised, or were they trying to do too much too quickly? Did they have the right structure and team in place to do so? Although Mupita was convinced that swift action and dramatic change were needed to succeed, there were skeptics both inside and outside the firm.
As of 12/31/21, Amazon held $22 billion of equity and warrants in related companies. In fact, it often requests a free grant of warrants when it enters into a new commercial agreement with a supplier. Over the past 20 years, Amazon has gotten warrants in almost 20 publicly traded companies and more than 75 private companies; in a few instances, it has gotten multiple grants from a single company. Combined, Amazon held $3.4 billion of warrants as of year-end 2021. This case explores one of the recent transactions in which Amazon requested warrants as part of signing a new commercial agreement with SpartanNash Company, the fifth largest food distributor in the United States. In September 2020, shortly before Tony Sarsam became CEO of SpartanNash, Amazon proposed a new 2-part agreement. The first part involved a revision to the existing commercial agreement that governed distribution of grocery items from suppliers to Amazon warehouses. The second part involved a free grant of "at-the-money" warrants to buy up to 15% of SpartanNash's shares. The warrants would vest over seven years based on Amazon's cumulative purchases from SpartanNash up to a total of $8 billion. Compared to Amazon's current spending of approximately $400 million per year, this proposal represented a significant opportunity for SpartanNash to grow with one of America's largest and fastest-growing retailers. But that opportunity came at a cost (giving Amazon warrants). Should Sarsam accept the proposal, reject it, or try to renegotiate aspects? More generally, students must assess whether this was an example of a powerful buyer exerting market power over a smaller supplier, or was it an example of a new dynamic partnership that would align interests and share gains through common ownership. In other words, was Amazon's proposal coercive, collaborative, or both?
Unbeknownst to most people, Amazon currently holds $10 billion of equity and warrants in related companies. In fact, it often requests a free grant of warrants when it enters into a new commercial agreement with a supplier. Over the past 20 years, Amazon has gotten warrants in at least 13 publicly traded companies and more than 75 private companies. As of January 2022, Amazon's current holdings of warrants was worth almost $4 billion. This case explores one of the recent deals in which Amazon requested warrants as part of a new commercial agreement. In September 2020, shortly before Tony Sarsam became CEO of SpartanNash Company, the fifth largest food distributor in the United States, Amazon presented the company with a 2-part proposal. The first part involved a revision to the existing commercial agreement that governed distribution of food from suppliers to Amazon warehouses. The second part involved a free grant of "at-the-money" warrants to buy up to 15% of SpartanNash's shares. The warrants would vest over seven years based on Amazon's cumulative purchases from SpartanNash up to a total of $8 billion. Compared to Amazon's current spending of $400 million per year, this proposal represented a significant opportunity for SpartanNash to grow with one of America's largest and fastest-growing retailers. Should Sarsam accept the proposal, reject it, or try to renegotiate aspects? More generally, was this an example of a powerful buyer exerting market power over a supplier, or was it an example of a new kind of dynamic partnership that would align interests the medium to longer term through ownership stakes? "
As of 12/31/21, Amazon held $22 billion of equity and warrants in related companies. In fact, it often requests a free grant of warrants when it enters into a new commercial agreement with a supplier. Over the past 20 years, Amazon has gotten warrants almost 20 publicly traded companies and more than 75 private companies; in a few instances, it has gotten multiple grants from a single firm. Combined, Amazon held $3.4 billion of warrants as of year-end 2021. This case explores one of the recent transactions in which Amazon requested warrants as part of signing a new commercial agreement with Kornit Digital, a small, but rapidly growing digital printing company based in Israel.
At one time, Bed Bath & Beyond was one of the most successful specialty retailers in the United States-it's growth and profit margins far exceeded both peer retailers in the home goods market as well as many other discount retailers. But in 2014, its stock price peaked, growth slowed, and margins began to shrink. By 2018, it was losing money and sales were declining as online and discount retailers (e.g., Amazon, Walmart, and Wayfair) entered the industry. Noting the underperformance, a group of activist investors tried to replace the entire board and leadership team in early 2019. Although they did not succeed, the company replaced five directors, asked the founders to retire, and appointed a new CEO named Mark Tritton in October 2019. About a year later, Tritton and a newly installed leadership team announced a new strategy "to unlock growth and drive significant shareholder value." They also announced a new "financial roadmap" and capital allocation framework to deliver strong and sustainable total shareholder returns. The question is whether this turnaround plan could save the once-venerable retailer and help it regain a competitive advantage in the new, more competitive retail environment.
Emmanuel Faber became CEO of Danone SA, the French food and beverage company, in 2014. Right from the start, he ran the company with a dual commitment to both profit and purpose (i.e., ESG objectives). In fact, in 2018, he said, "It's time to make sustainable business the only way of doing business." The case examines his leadership and efforts to make Danone a more socially and environmentally responsible company, culminating with a shareholder vote in June 2020 to adopt a new legal status recently created under French corporate law called the "entreprise à mission" (EAM or mission-driven company). Shareholders overwhelmingly approved the bylaw change which allowed Danone to redefine its "raison d'être" (corporate purpose) to include social and environmental objectives. In response, Faber said, "You have toppled the statue of Milton Friedman here today," a reference to the author of the famous article entitled "The Social Responsibility of Business is to Increase Profits." As the first publicly traded company in France to adopt the new structure, all eyes were on Faber to see how he would run the company and achieve multiple corporate objectives.