This case is a study of the initial discovery of penicillin and how it came to be a mass-market product. The discovery of penicillin is fascinating first and foremost because of its direct, life-saving benefits and because of the context of World War II that surrounded its rise. Throughout the case, an argument is made for the importance of this invention not only for the society of the 1940s, but for our society today. Students are introduced to a handful of the individuals and institutions involved in the discovery and development of the technology, providing them with the information necessary to consider the people, institutions, and other factors that led to the drug's success. Students consider especially the role of intellectual property during penicillin's rise to success, as well as the cultural and legal differences between Britain and the United States related to the patenting of medical discoveries.
This case set describes the gale of creative destruction that came with the rise of refrigeration and the creation of a globalized food supply chain, examined through the life of Charles Tellier, a French entrepreneur and inventor of the refrigerated ship that completed the first successful transoceanic shipment of fresh meat. It takes place largely during the mid- to late 19th century, a time of increasing globalization and disruptive social change. Tellier was a visionary inventor who saw refrigeration's potential to transform the world's food supply and improve nutrition and quality of life for the growing middle classes through improved year-round access to high-quality, perishable animal protein. While he was a dedicated and ultimately successful inventor, he struggled to fund his pursuits and manage stakeholders in his endeavors. The A case rests on a pivotal moment when Tellier's refrigerated transport technology showed early promise, but Tellier and the owners of the company disagreed on the appropriate next steps to verify and capitalize on this early success. This B case offers an epilogue.
This case set describes the gale of creative destruction that came with the rise of refrigeration and the creation of a globalized food supply chain, examined through the life of Charles Tellier, a French entrepreneur and inventor of the refrigerated ship that completed the first successful transoceanic shipment of fresh meat. It takes place largely during the mid- to late 19th century, a time of increasing globalization and disruptive social change. Tellier was a visionary inventor who saw refrigeration's potential to transform the world's food supply and improve nutrition and quality of life for the growing middle classes through improved year-round access to high-quality, perishable animal protein. While he was a dedicated and ultimately successful inventor, he struggled to fund his pursuits and manage stakeholders in his endeavors. The A case rests on a pivotal moment when Tellier's refrigerated transport technology showed early promise, but Tellier and the owners of the company disagreed on the appropriate next steps to verify and capitalize on this early success.
In early 2006, the anticipated expansion of package delivery services in China provided a great opportunity for the two package delivery giants FedEx and UPS. It was unclear which of these firms would make the most of this opportunity. FedEx had an early foothold, but UPS had a longer tradition of success. Adding to this debate is the observation that the FedEx stock price had been rising steadily and on that basis, FedEx had outperformed UPS.
The cofounder of Compass Records, a small, independent music-recording company, must decide whether to "produce and own" the next album of an up-and-coming folk musician or simply "license" her finished recording. This case presents information sufficient to build cash-flow forecasts for either investment alternative. Discounted cash flow (DCF) analysis reveals that licensing will be the more attractive alternative unless the student assesses the value of the options for follow-on albums included in the "produce-and-own" contract.
In August 2005, an investment manager of a hedge fund is considering purchasing an equity interest in a start-up biotechnology firm, Arcadian Microarray Technologies, Inc. The asking price is $40 million for a 60 percent equity interest. Managers of the firm are optimistic about the firm's future performance; the investment manager is more conservative in his expectations. He calls on the help of an analyst with her firm to fashion a counterproposal to Arcadian's management. The tasks for the student are to apply the concept of terminal value, interpret completed analyses and data, and derive implications of different terminal-value assumptions in an effort to recommend a counterproposal. Very little numerical figure-work is required of the student.
In November 2003, a vice president of Deutsche Bank Securities received a request from a client to finance the acquisition of a large hospital-supply distributor. The client needed to present to the seller an offering price and indication of financial commitment within two weeks. The contemplated transaction entailed a highly leveraged acquisition of the target. The tasks for the student are to value the target firm and projected synergies, assess the creditworthiness of the target (i.e., the ability to bear the high debt), and critically evaluate the general design of the transaction.
On March 1, 2001, Jessica Gallinelli, managing director of Bancroft Capital Management, heard surprising and somewhat disturbing news about the proposed bid by General Electric Company (GE) for Honeywell International Inc. Despite recent public assurances about the deal from GE's chairman and chief executive officer (CEO), John F. "Jack" Welch Jr., the antitrust regulatory authority of the European Commission (EC) announced it had initiated a review of the proposed merger. Gallinelli, whose fund owned a large stake in Honeywell, considered this major development and wondered whether Bancroft should alter its investment. Immediately, Gallinelli instructed her associate to provide background material on the merger, an assessment of the probability the merger would be approved by antitrust regulators in the U.S. and Europe, and valuation analyses to assist Gallinelli in assessing Bancroft's investment in Honeywell. She would need to decide quickly whether to hold or sell her fund's 10 million shares in Honeywell and short position of 10 million shares in GE. As a risk arbitrageur, she thought prices would respond rapidly to the EC's announcement. She remembered Jack Welch's confidence of five months earlier that this was the "cleanest deal you'll ever see," and she wondered whether that was still the case.
In July 2002, an investment banker advising Deluxe Corporation must prepare recommendations to the company's board of directors regarding the firm's financial policy. Special considerations are the mix of debt and equity and the maintenance of financial flexibility.
In June 2004 Purinex, Inc., a pharmaceutical company with several clinically and commercially promising drugs in development, expected to secure a partnership with a major pharmaceutical company sometime in the next four to 12 months. That partnership, if secured, would enable Purinex to develop one of its leading compounds as a drug. The company, however, had no sales or earnings and only 11 months of cash on hand. The student must assess whether the company should attempt to secure financing now or wait until it consummated a partnership deal. The tasks for the student include evaluating the probabilities that a collaboration with a pharmaceutical company would actually happen; determining whether the company stay above water until such occurred; and analyzing the other risks to the company under these circumstances.
In mid-September 2005, Ashley Swenson, the chief financial officer of this large CAD/CAM (computer aided design and manufacturing) equipment manufacturer must decide whether to pay out dividends to the firm's shareholders, or repurchase stock. If Swenson chooses to pay out dividends, she must also decide on the magnitude of the payout. A subsidiary question is whether the firm should embark on a campaign of corporate-image advertising, and change its corporate name to reflect its new outlook. The case serves as an omnibus review of the many practical aspects of the dividend and share buyback decisions, including (1) signaling effects, (2) clientele effects, and (3) finance and investment implications of increasing dividend payout and share repurchase decisions. This case can follow a treatment of the Miller Modigliani dividend-irrelevance theorem and serves to highlight practical considerations in setting dividend policy.
This case serves as part of an introduction to estimating investors' required rates of return. It should follow one or two class sessions covering the techniques for estimating WACC. The numerical calculations required are light, although some of the subtleties about the use of risk-adjusted hurdle rates will require time for the novice student to absorb. The case is about the CFO of a telecommunications company who must respond to a corporate raider claiming that a major business segment of this company should be sold because it is not earning a satisfactory rate of return. The case examines the use of a single hurdle rate to evaluate all segments of the company versus a risk-adjusted hurdle-rate system. The tasks for the student are to resolve the debate, estimate the weighted-average costs of capital (WACC) for two business segments, and respond to the raider.
In early 2002, an analyst, Tom Baumann, must propose terms for leasing one of his company's advanced factory-automation systems to a major customer. From the lessor's standpoint, the challenge is simply to design an annuity stream that yields a present value equal to, or greater than, the value of the asset being leased. Certain factors, however, serve to complicate the analysis. The tax exposure and debt rating of the customer are uncertain, leaving the analyst to estimate the impact of alternative lease terms under different tax and interest-rate assumptions. Also, the customer is considering leasing competing systems from companies in Germany and Japan; these competing proposals limit Primus's flexibility in tailoring its proposal. In short, the student's task is to design lease terms that exploit the lessee's tax and interest-rate exposure within constraints set by competitive terms.
The case presents the student with financial ratios for eight pairs of unidentified companies and asks them to mate the description of the company with the financial profile derived from the ratios. The primary objective of this case is to introduce students to financial ratio analysis-in particular, the range of ratios and the insights each one affords. This case presumes that students have already been introduced to the definitions of various financial ratios through other readings or lectures. The structured exploration of pairs of companies within an industry affords a number of important insights into strategy and financial performance. First, the economics of individual industries account for significant variations in financial ratios because of differences in technologies, product characteristics, or competitive structures. Second, financial performance results from managerial choices: within industries, the wide variation in financial ratios is often a result of the differences in corporate strategy in marketing, operations, and finance. For those reasons, this case is a good springboard into subsequent classes, which deal with the interaction of strategy and financial performance.
On May 24, 2005, Warren Buffett, the chairman and chief executive officer of Berkshire Hathaway Inc., announced that MidAmerican Energy Holdings Company, a subsidiary of Berkshire Hathaway, would acquire the electric utility PacifiCorp. In Buffett's largest deal since 1998, and the 2nd largest of his entire career, MidAmerican would purchase PacifiCorp from its parent, Scottish Power plc, for $5.1 billion in cash and $4.3 billion in liabilities and preferred stock. The acquisition of PacifiCorp renewed public interest in its sponsor, Warren Buffett. In many ways, he was an anomaly. What were the key principles that guided Buffett? Could these be broadly applied in the 21st century, or were they unique to Buffett and his time? From an understanding of these principles, analysts hoped to illuminate the acquisition of PacifiCorp. What were Buffett's probable motives in the acquisition? What did Buffett's offer say about his valuation of PacifiCorp, and how would it compare with valuations for other regulated utilities? Would Berkshire's acquisition of PacifiCorp prove to be a success? How would Buffett define success?
Set in June 2004, this case invites the student to assess the financial performance of FedEx Corp. and United Parcel Service, Inc (UPS). The two firms have competed intensely for dominance of the overnight express package industry. This case is intended for use in an introductory discussion of corporate value creation and its sources. The case requires no numerical computations from the student; rather, the tasks for the student are to interpret the results and to reflect upon their implications.
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.