In February 2011, David Blair, CEO of Catalyst Health Solutions, was considering another acquisition. Catalyst was already the fastest-growing pharmacy benefit management company in the United States, and Blair had his eye on a subsidiary of Walgreen Co., the second-largest retail drugstore chain in the country. Walgreen Co. was focusing its corporate strategy on the retail business and had just purchased 258 Duane Reade pharmacies in New York for over $1 billion. Walgreen Co.'s subsidiary, WHI, managed pharmacy benefits and was a relatively small part of the overall company, contributing less than 2% of its bottom line. Might Walgreen Co. be interested in selling WHI?
For many years, Towers Watson (TW) has conducted its own research into alternative approaches to market cap investing. Philip Tindall senior investment consultant with TW was impressed by a recent presentation by the CIO of Research Affiliates (RA) about an innovative investing concept called the "Fundamental Index methodology." He thinks it might be an important innovation in applying nonmarket cap approaches, but he has some concerns about the approach and whether or not it would be appropriate for TW clients. Clients depended on TW to keep them on the cutting edge of institutional investing, but recommending an untried investment strategy and deviating from status quo investment practice could either generate outperformance relative to their investment consulting competitors, thereby attracting new clients, or it could result in underperformance and defection of their clients to those competitors.
The chairman and CEO of the Genzyme Corporation, one the country's top five biotechnology firms, has received a phone call requesting a meeting with the cofounder and principal of a large hedge fund that now has a 2.6% stake in his company. Before meeting with him, the CEO is aware that he needs a strategy for dealing with this "activist" investor with a track record of forcing out CEOs.
In April 2010, the SEC brought fraud charges against Goldman Sachs for its structuring and marketing of Abacus 2007-AC1, a complex mortgage-related security. Less than two years after the onset of the great financial crisis, and in the midst of political posturing to shape agendas for the financial reform, the case discusses the market reaction to the lawsuit and the dilemma facing Lloyd Blankfein, Goldman's CEO. The deal structure is analyzed in detail within the context of the market for mortgage-backed securities. The case can be used in a course on financial market regulation or in a course on financial markets and institutions. Instructors may also assign a technical note "The Financial Regulatory Environment" (UVA-GEM-0103) to give students more background on the U.S. regulatory environment.
On July 15, 2010, the U.S. Senate obtained the 60 votes needed to pass the Dodd-Frank Wall Street Reform and Consumer Protection Act. On the same day, the SEC reached a $550 million settlement with Goldman Sachs relating to its April 16 lawsuit by dropping its fraud charges. Supporters of both sides claimed the settlement was a victory. This short case is the epilogue to "The SEC vs. Goldman Sachs" (UVA-GEM-0101).
The financial regulatory environment in the United States covers the insurance, banking, and securities industries. This note summarizes the regulation of all three as of July 31, 2010. This compact technical note is intended to provide students with a summary of U.S. financial regulatory history. It traces regulatory agencies and the most relevant congressional acts from 1863 to 2010. Its original intent was to be used as background for the "The SEC vs. Goldman Sachs" cases (UVA-GEM-0101 and UVA-GEM-0102). It could also serve as a supplement for a class on financial markets and institutions, the history of U.S. financial crises, or the general history of business regulation in the United States.
This short case could be handed out at the end of class discussion on "J&L Railroad" [UV0251] in preparation for the following class, or if students are more experienced with hedging and option pricing, the instructor may choose to cover both cases in a single class period. It is the companion case to "J&L Railroad" [UV0251], and presents more technical issues regarding the hedging problem by requiring students to understand option-pricing principles. The board likes the CFO's hedging recommendations, but it wants a more careful analysis of the bank's prices for its risk-management products: the caps and floors. Besides demanding an understanding of option pricing, this case puts particular emphasis on the calculation and use of implied volatility.
Monsanto is facing an uncertain near term financial outlook and the case challenges students to generate an operating forecast (income statement and balance sheet operating accounts). The case naturally lends itself to sensitivity analysis related to sales growth assumptions. The case is intended to cover the basics of forecasting without introducing the complexities associated with financing.