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.
In 2022, after five years of pursuing a new "AI-first" strategy, Google had captured a sizeable share of the American and global markets for voice assistants. Google Assistant was used by hundreds of millions of users around the world, but Amazon retained the largest share of the smart speaker market, and Apple's share was quickly growing following a strategic shift towards affordability. In addition, Chinese companies including Baidu and Alibaba dominated the smart speaker market in China, and their products were increasingly popular in foreign markets. Google CEO Sundar Pichai needed to figure out how to gain new users and grow Google Assistant's market share. Second, he needed to determine how Google Assistant would, if ever, generate revenue.
2021 was a banner year for Elon Musk. CEO of the electric vehicle manufacturer Tesla, the aerospace manufacturer SpaceX, and a few smaller startups, Musk became the richest person on Earth after Tesla reached a market capitalization of $1 trillion and SpaceX a private valuation of $100 billion. Both companies made bet big on risky technologies. Now that they were leaders in booming industries, the task was to retain their lead. Musk had proposed a round of big new bets for each company: Tesla was to work with partners to rapidly expand battery production with a focus on lithium-iron phosphate batteries, and SpaceX was to launch thousands more of its Starlink satellites aboard Starship, the largest launch system ever devised. Meanwhile, Tesla faced litigation related to SEC complaints and safety concerns about its Autopilot driver-assistance system, and SpaceX's growing Starlink constellation similarly raised safety concerns. For Musk, the question was: should he consolidate gains and fix the operational, legal, and political problems before launching new initiatives, or should he proceed full speed ahead?
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 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?
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.
This case is used to explore the strategic concept of "look forward, reason back." Roku in 2021 is trying to figure out the future of television and streaming media. Students are asked to provide a vision for television and streaming media (that is, Look Forward) by the middle of the decade, and then reason back to the strategic choices it should take in 2021. Roku is well positioned, but industry and consumer habits are changing quickly, and Roku must decide whether to focus on creating its own exclusive content, focus on licensing its OS to TV manufacturers, and/or remain the "Switzerland" of the streaming media world, without competing with content players or TV OEMs.
This case explores the competitive war between Snap, Facebook, and TikTok in 2021. The strategic focus is on Snapchat: how should it respond to the emergence of TikTok, and how should it compete with the dominant competitor in its space - Facebook. The case examines the history of Snap, its emerging threat from TikTok, and its on-going struggles to become profitable in the shadow of intense competition from Facebook, and especially Instagram. Looking at strategy from the perspective of Snap CEO, Evan Spiegel, the case asks whether Snap should seek new demographics to grow the user base, explore alternative business models such as WeChat, differentiate itself with augmented reality, or focus on privacy to distinguish itself from the competition. The context of these strategic choices is how do you win in a world with strong network effects and much larger competitors.
On October 7, 2020, Bespoken Spirits publicly announced it had received $2.6 million of seed funding for its "sustainable maturation process," a process that could produce award-winning whiskeys in just days rather than years using a novel technology and data science. The technology dramatically reduced the time, cost, and environmental impact (it required less energy and less wood) of making whiskey. At the same time, the technology could also be used to enhance a whiskey's taste profile which could allow producers to charge more for their products. To date, entrepreneurs Stu Aaron and Martin Janousek had proven they could produce whiskey at scale and with desired properties. Having validated the concept, they now had to decide whether to continue making whiskey themselves or use their technology to process it for others. In short, they had to decide whether to be a product-based, B2C company or a service-based, B2B company, or both? If they decided to be a service business, should they emphasis the Maturation-as-a-Service (MaaS, faster and lower cost production) or the Customization-as-a-Service (CaaS, creation of customized products with unique taste profiles) business in the short term?
In 2000, Eaton Corporation was a broadly diversified industrial conglomerate. But its strategy was evolving and its focus was narrowing around "power management" and more recently on "intelligent power," the use of digitally enabled products and services designed to enhance efficiency and reliability. To implement this transition, Eaton had acquired more than 70 companies and divested another 50. Such active portfolio management required Eaton to regularly assess the prospects of each business unit-the profit and growth potential-and to explore opportunities to enhance its capabilities through acquisitions. In January 2020, Eaton got an offer from Danfoss, a Danish conglomerate, to buy its hydraulics business for $3.3 billion. Recently appointed CEO Craig Arnold must decide whether this deal makes sense strategically and financially. In particular, he must decide if $3.3 billion is a fair price for the firm's hydraulics business. This abridged version is shorter than the original version (HBS Case #221-006) and does not contain the appendix that explains and derives the formulas for the WACC using the capital asset pricing model (CAPM).
When Bristol-Myers Squibb (BMS) acquired Celgene Corporation in November 2019, Celgene shareholders received cash, BMS stock, and a contingent value right (CVRs) that would pay $9 if the U.S. Food and Drug Administration (FDA) approved three of Celgene's late stage drugs by March 31, 2021. Akari Tanaka, a portfolio manager at Kendall Square Advisors, held 400,000 CVRs in her $1.2 billion Health Science Opportunities Fund, and must decide what to do with this holding given the rising concerns about the coronavirus pandemic in early 2020. The tradable CVR's peaked at $3.70 in mid-February, fell to a low of $2.15 in mid-March, and were currently trading at just under $3.00 in late March. As part of her decision, Tanaka must value the CVRs using discounted cash flow (DCF) analysis which required an estimate of the expected cash flow and a risk-adjusted discount rate. Given this analysis, she must then decide what to do with her holding-should she sell the CVRs, hold them, or buy more?
In 2000, Eaton Corporation was a broadly diversified industrial conglomerate. But its strategy was evolving and its focus was narrowing around "power management" and more recently on "intelligent power," the use of digitally enabled products and services designed to enhance efficiency and reliability. To implement this transition, Eaton had acquired more than 70 companies and divested another 50. Such active portfolio management required Eaton to regularly assess the prospects of each business unit-the profit and growth potential-and to explore opportunities to enhance its capabilities through acquisitions. In January 2020, Eaton got an offer from Danfoss, a Danish conglomerate, to buy its hydraulics business for $3.3 billion. Recently appointed CEO Craig Arnold must decide whether this deal makes sense strategically and financially. In particular, he must decide if $3.3 billion is a fair price for the firm's hydraulics business.
In April 2013, TransDigm, a company that manufactured a wide range of highly engineered aerospace parts for both military and commercial aircraft, announced an agreement to acquire Aerosonic Corporation for $39 million in cash (1.2 times Aerosonic's sales of $31 million). Having acquired more than 40 companies in the past 20 years, TransDigm was an experienced acquirer with a unique business model focused exclusively on value creation. This case describes TransDigm's acquisition process with a focus on the merger negotiations and the key contractual terms in the merger agreement (break-up fees, go shop period, standstill provision, top-up options, etc.). It serves as a complement to the TransDigm in 2017 case (HBS #720-422). Whereas the TransDigm case provides an overview of the company, its history, its value creation strategy, and its financial performance, the Aerosonic case provides a deep dive into a single transaction as a way to illustrate TransDigm's acquisition-driven growth strategy and to practice valuing an acquisition offer using multiple methods. Ultimately, the goal is to understand the change in value from a standalone company to a fully integrated and value-enhanced subsidiary of the TransDigm Group.
In May 2013, TransDigm, a company that manufactured a wide range of highly engineered aerospace parts for both military and civilian aircraft, announced it was buying Arkwin Industries for $286 million in cash (3 times Arkwin's sales of $91 million). Having acquired more than 40 companies in the past 20 years, TransDigm was an experienced acquirer with a unique business model focused exclusively on value creation. This case describes TransDigm's acquisition, integration, and talent development processes as well as the changes made at Arkwin over the following three years. It serves as a complement to the TransDigm in 2017 case (HBS #720-422). Whereas the TransDigm case provides an overview of the company, its history, its value creation strategy, and its financial performance, the Arkwin Industries case provides a deep dive into a single transaction as a way to illustrate TransDigm's value creation strategy in practice. That strategy consisted of three parts-value-based pricing, cost reductions, and new product development-and had the goal of doubling a target firm's operating margins and cash flows within five years.