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In June 2002, a managing director of an "active investor" hedge fund is considering the possible gains from increasing the debt capitalization of The Wm. Wrigley Jr. Company. Wrigley has been conservatively financed, and at the date of the case, carries no debt. The tasks for the student are to: • Estimate the potential change in value from re-levering Wrigley using adjusted present value analysis; • Assess the impact on weighted average cost of capital, earnings per share, the credit rating of the firm, and voting control of the Wrigley family; • Consider the merits of dividend or share repurchase as a means of returning cash to shareholders. The central teaching objective of the case is to explore the financial effects of capital structure change. Key here is the trade-off between the tax benefits of debt and the associated costs in the form of financial distress and loss of flexibility. Related issues include signaling to investors, clientele effects (control considerations for the Wrigley family), and incentives created for directors and managers. Finally, the case affords a comparison of dividends and share repurchases.

This case considers the sudden and very large drop in the market value of equity for Krispy Kreme Doughnuts, Inc. associated with a series of announcements in 2004. These announcements caused investors to revise their expectations about the future growth of Krispy Kreme, which had been one of the most rapidly growing American corporations in the new millennium. The task for the student is to evaluate the implications of these announcements and assess the financial health of the company. This case is intended to be introductory: it can provide a first exercise in financial statement analysis and lay the foundation for two important financial themes, the concept of financial "health" and the financial-economic definition of "value" and its determinants.

Set in the autumn of 2005, this case recounts the remarkable performance record of Value Trust, a mutual fund managed by William H. "Bill" Miller III at Legg Mason, Inc. The case describes the investment style of Miller, whose record with Value Trust has beaten the S&P 500 14 years in a row. The tasks for the student are to assess the performance of the fund, consider the sources of its success, and decide on the sustainability of Miller's performance. Consistent with the introductory nature of the case, the analysis requires no numerical calculations. The instructor should not be deceived, however: the absorption of capital-market background and the implications of financial concepts in the case will fully occupy the novice. This case updates and replaces "Peter Lynch and the Fidelity Magellan Fund" and "The Fidelity Magellan Fund, 1995." The case is intended for use in the opening stages of a finance course. It provides a nontechnical introduction to the U.S. equity markets and lays the foundation for some basic concepts in finance.

Spreadsheet supplement for case UV1364.

At three o'clock in the morning on September 10, 2001, Thierry Hautillac, a risk arbitrageur, learns of the final agreement between Pinault-Printemps-Redoute SA ("PPR") and LVMH Moët Hennessy Louis Vuitton SA ("LVMH"). After a contest for control of Gucci lasting over two years, PPR has emerged as the winner. PPR and LVMH have agreed for PPR to buy about half of LVMH's stock in Gucci for $94 per share, for Gucci to pay an extraordinary dividend of $7 per share, and for PPR to give a two and a half year put option with a strike price of $101.50 to the public shareholders in Gucci. The primary task for the student in this case is to recommend a course of action for Hautillac: should he sell his 2% holding of Gucci shares when the market opens, continue to hold his shares, or buy more shares? The student must estimate the risky arbitrage returns from each of these choices. As a basis for this decision, the student must value the terms of payment and consider what the Gucci stock price will do upon the market's open. The student must determine the intrinsic value of Gucci using a DCF model as well as information on peer firms and transactions. The student must consider potential synergies between Gucci and PPR and between Gucci and LVMH. The student must assess the likelihood of a higher bid, using analysis of price changes at earlier events in the contest for clues.

This case asks students to identify and evaluate the merits of two factors that have led a buy-side analyst to conclude that an acquiring company is a high-risk investment: (1) the company's allocation of acquisition proceeds and (2) the quality of the target's intellectual-property (IP) portfolio. The acquirer's allocation of the acquisition cost of the target is quite different from that of one of the company's previous deals. Careful interpretation of each line item for both acquisitions yields insights into the value management seeks with the acquisition. An IP-quality report supplied by an independent IP consulting firm likewise raises a number of issues students should identify. The primary objectives of the case are to (1) introduce IP-quality concepts as they relate to a firm's patent portfolio, (2) understand the accounting basis for firms' purchase-price allocations in IP-intensive acquisitions, and (3) compare and contrast the risk implications of acquisitions of in-process portfolios of drug candidates with established products.

In December 1998, an intellectual property executive at DuPont pondered a new program for the 196-year-old company. The executive was reviewing a proposal to donate DuPont patents to universities around the United States. The move promised substantial financial benefits for DuPont-the company could save on fees to maintain the patents, and they could gain significant tax deductions. But should DuPont make such a donation, and if so, should it offer patents in the life sciences or in another discipline? Did the program hold any strategic or tax-related risks for DuPont?

In September 2003, Jeffrey Immelt, CEO of General Electric, must evaluate a final proposal for GE to acquire Amersham plc, the leading producer of contrast agents used in medical diagnostics. The case permits the valuation of Amersham based on peer firms, comparable transactions, and recent trading history. But the focus of analysis is on the robustness of Amersham's intellectual property (IP). On close examination, the company's IP position is weaker than it appears, given recent patents filed by competitors. The economic impact of these IP challenges may be tested in the case of the company's leading product, Visipaque, for which the case gives cash flows. Discounted cash flow analysis reveals great sensitivity to the remaining years of effective patent life. A key lesson underscores the importance of due-diligence research on a firm's IP position.

In September 2003, Jeffrey Immelt, CEO of General Electric, must evaluate a final proposal for GE to acquire Amersham plc, the leading producer of contrast agents used in medical diagnostics. The case permits the valuation of Amersham based on peer firms, comparable transactions, and recent trading history. But the focus of analysis is on the robustness of Amersham's intellectual property (IP). On close examination, the company's IP position is weaker than it appears, given recent patents filed by competitors. The economic impact of these IP challenges may be tested in the case of the company's leading product, Visipaque, for which the case gives cash flows. Discounted cash flow analysis reveals great sensitivity to the remaining years of effective patent life. A key lesson underscores the importance of due-diligence research on a firm's IP position.

In 2002, a money manager is considering how to vote her shares in Hewlett-Packard on the proposal to merge with Compaq. The (A) case presents information about the strategic and financial motivations of the merger. Included are completed valuations of both HP and Compaq and detailed summaries of the leading advocate (Carly Fiorina) and critic (Walter Hewlett). The tasks for the student are to value the prospective synergies in the deal and critically assess the strategic arguments (pro and con). The (B) case affords a detailed examination of the terms of the proposed merger. The tasks for the student are to critically assess the specific design of the deal and its impact on shareholders. Of particular interest are the impact on earnings per share (that is, EPS dilution), the governance of the new firm and whether this is, indeed, a merger of equals. The (C) case describes the outcome of the proxy contest. Here the task for the student is to evaluate the strategies of each side in communicating with shareholders and presenting arguments. The objectives of the case module are to expose students to the mechanics of proxy contests, exercise skills in valuation and strategic analysis, and critically evaluate deal terms. The (A) and (B) cases can be taught in sequential classes, or in one class. The (C) case is typically distributed at the end followed by a brief discussion.

In 2002, a money manager is considering how to vote her shares in Hewlett-Packard on the proposal to merge with Compaq. The (A) case presents information about the strategic and financial motivations of the merger. Included are completed valuations of both HP and Compaq and detailed summaries of the leading advocate (Carly Fiorina) and critic (Walter Hewlett). The tasks for the student are to value the prospective synergies in the deal and critically assess the strategic arguments (pro and con). The (B) case affords a detailed examination of the terms of the proposed merger. The tasks for the student are to critically assess the specific design of the deal and its impact on shareholders. Of particular interest are the impact on earnings per share (that is, EPS dilution), the governance of the new firm and whether this is, indeed, a merger of equals. The (C) case describes the outcome of the proxy contest. Here the task for the student is to evaluate the strategies of each side in communicating with shareholders and presenting arguments. The objectives of the case module are to expose students to the mechanics of proxy contests, exercise skills in valuation and strategic analysis, and critically evaluate deal terms. The (A) and (B) cases can be taught in sequential classes, or in one class. The (C) case is typically distributed at the end followed by a brief discussion.

Spreadsheet supplement for case UV0281.

In 2003 The Boeing Company announced plans to build a new "super-efficient" commercial jet called the "7E7" or "Dreamliner." This was a "bet the farm" gamble by Boeing, similar in magnitude to its earlier introductions of the 747 and 777 airliners. The technological superiority of the new airframe and the fact that it would penetrate a rapidly growing market segment argued for approval of the project. On the other hand, the current market for commercial airplanes was depressed, reflecting terrorism risk, war, and SARS, a contagious illness resulting in global travel warnings. Boeing's board of directors would need to weigh these considerations in granting final approval to proceed with the project The task for students is to evaluate the 7E7 project against a financial standard, the investors' required returns. The case gives internal rates of return (IRR) for the 7E7 project under base case and alternative forecasts. The students must estimate a weighted-average cost of capital (WACC) for Boeing's commercial-aircraft business segment in order to evaluate these IRRs. As a result of this analysis the students identify the "key value drivers" and distinguish, on a qualitative basis, the key gambles Boeing is making. The general objective of this case is to exercise students' skills in estimating a weighted average cost of capital and cost of equity. The need for students to estimate a segment WACC draws out their abilities to critique different estimates of beta and to manipulate the levered-beta formulas. Boeing competes in both the commercial aircraft and defense business; thus, deriving the appropriate benchmark WACC for the 7E7 project requires isolating the commercial aircraft component from Boeing's overall corporate WACC. In doing so, students engage the concept of value additivity.

It was supposed to be an amicable "merger of equals," an example of European togetherness, a synergistic deal that would create the world's second-largest consumer foods company out of two former competitors. But the marriage of entrepreneurial powerhouse Royal Biscuit and the conservative, family-owned Edeling GmbH is beginning to look overly ambitious. Integration planning is way behind schedule. Investors seem wary. But for Royal Biscuit HR head Michael Brighton, the most immediate problem is that he can't get his German counterpart, Dieter Wallach, to collaborate on a workable leadership development plan for the merged company's executives. And stockholders have been promised details of the new organizational structure, including a precise timetable, in less than a month. The CEO of the British company--and of the postmerger Royal Edeling--is furious. It's partly a culture clash, but the problems may run deeper than that. Commenting on the fictional case study in R0405A and R0405Z are Robert F. Bruner, the executive director of the Batten Institute at the University of Virginia's Darden Graduate School of Business Administration in Charlottesville; Leda Cosmides and John Tooby, the codirectors of the Center for Evolutionary Psychology at UC Santa Barbara; Michael Pragnell, the CEO and director of the board for the agribusiness firm Syngenta, based in Basel, Switzerland; and David Schweiger, the president of the Columbia, South Carolina-based management consulting firm Schweiger and Associates.

It was supposed to be an amicable "merger of equals," an example of European togetherness, a synergistic deal that would create the world's second-largest consumer foods company out of two former competitors. But the marriage of entrepreneurial powerhouse Royal Biscuit and the conservative, family-owned Edeling GmbH is beginning to look overly ambitious. Integration planning is way behind schedule. Investors seem wary. But for Royal Biscuit HR head Michael Brighton, the most immediate problem is that he can't get his German counterpart, Dieter Wallach, to collaborate on a workable leadership development plan for the merged company's executives. And stockholders have been promised details of the new organizational structure, including a precise timetable, in less than a month. The CEO of the British company--and of the postmerger Royal Edeling--is furious. It's partly a culture clash, but the problems may run deeper than that. Commenting on the fictional case study are Robert F. Bruner, the executive director of the Batten Institute at the University of Virginia's Darden Graduate School of Business Administration in Charlottesville; Leda Cosmides and John Tooby, the codirectors of the Center for Evolutionary Psychology at the University of California, Santa Barbara; Michael Pragnell, the CEO and director of the board for the agribusiness firm Syngenta, based in Basel, Switzerland; and David Schweiger, the president of the Columbia, South Carolina-based management consulting firm Schweiger and Associates.

This appendix supplements the multimedia case, "Hugh McColl and NationsBank: Building a National Footprint through M&A". The instructor can use this appendix as a supplement for the convenience of the reader. This document is not intended to substitute for the digital case. Note that Darden Business Publishing also makes available an Appendix that contains 68 pages of printed material drawn from the case: UVA-F-1420. In contrast, this document is an abbreviated supplement that contains only tabular material of financial information. **************************************** This appendix supports student preparation of the associated multimedia case study. See the abstract and teaching note for that case to obtain a summary of the teaching purpose, subject, issues, and classroom applications. Information contained in this appendix is a subset of the information available in the multimedia case and is prepared mainly for the convenience of the student. In particular, this appendix would be useful in executive education settings and where the student needs hard-copy reference to the material in the case. Generally, students who are heavy computer users will find this appendix redundant. Thus, the instructor's use of this appendix is entirely optional and should be linked to the needs of the student.

With their announcement on December 8, 1997, of their proposed merger, the CEOs of Union Bank of Switzerland and Swiss Bank Corporation must prepare a plan of integration of the two firms. This case presents the press release of the announcement and relates the reaction of investors and journalists. The case also presents a framework for setting the strategy of post-merger integration and summarizes the integration task before the executives. The tasks for the students include: 1. Assess the public communication of this deal. The public announcement launches the integration effort and sets a tone that can help or hinder the subsequent combination. 2. Survey the integration planning process. The executives of the two firms were committed to having a detailed integration plan in place before the consummation of the deal--this is consistent with current thinking about the desirability of avoiding a slow integration. Thus, the case is an illustration of the kinds of issues that must be resolved quickly. 3. Describe and evaluate the integration strategy of the new firm. The case surveys the process of integration planning between the announcement and consummation dates of the merger and outlines the approaches in the various business units. The student must consider the influence of various strategic issues including the balance of autonomy versus absorption, relatedness, and control versus consultation (these are described in the case.) The (A) case in the series describes the proposed terms of merger and invites students to value the benefits of the deal and assess the strategic motives. The (C) case summarizes the integration effort and the economic results over the five years following the transaction. It is recommended that the instructor distribute the (A) case for advance preparation by students and hold the (B) and (C) cases for discussion after the (A) case.

Spreadsheet for case UV0277