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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.

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.

Spreadsheet supplement for case UV1364.

The proposed sale of Hershey Foods during the summer of 2002 captured headlines and imaginations. Six months after making its decision to explore a potential sale, the board of the Hershey Trust Company was examining two serious offers: a joint bid from Cadbury Schweppes PLC and Nestle S.A. and an independent bid from the Wm. Wrigley Jr. Company. In essence, the board faced both an economic and a governance decision. On the economic side, the board needed to determine the value of Hershey as a stand-alone entity compared with the bids being offered. On the governance side, the board needed to decide whether selling Hershey compromised the board's original mandate from Milton Hershey.

Set in May 2000, these cases reflect the separate perspectives of the CEOs as they approach the negotiations of TSE International to acquire Yeats Valves. The task for the student is to complete a valuation analysis of the target and buyer, and to negotiate a price and exchange ratio with the counterparty. Each case contains a financial forecast only for that side; therefore, an important element in the negotiation is to obtain the private information of the other side, analyze it, and successfully negotiate terms of acquisition. The cases are relatively simple, and are offered as a first exercise in the valuation of the firm, and negotiation of an acquisition. They may be taught singly in usual case-discussion fashion, or combined into a joint-negotiation exercise where students are assigned parts to play. Used in a bilateral bargaining exercise, two teams of students are designated, each team representing one side of the negotiation and receiving a case designed for that team. The bargaining exercise provides a particular opportunity for joint teaching among instructors in finance, strategy, human behavior, and negotiation.

In July 2001, a new CEO joins this small manufacturer of CD-ROMs and DVDs to discover that the firm is in the midst of a financial crisis induced by rapid growth. The CEO asks an analyst for help with five tasks: (1) review historical performance of the firm; (2) forecast financing requirements for the next two years; (3) exercise the forecasting model to identify "key driver" assumptions; (4) estimate Star River's weighted average cost of capital; and (5) analyze a proposed investment in a packaging machine. The analyst must offer insights and recommendations based on the work.

Spreadsheet for case UV0072

In November 2000, a money manager needs to make a decision regarding an offering of convertible bonds by Corning. The analysis requires her to compare the insights available from standard descriptive ratios to those available from valuation analysis. This case is intended to be a student's first exercise in analyzing convertible bonds and assumes some familiarity with option pricing theory and bond valuation. In addition, the case highlights the importance of going beyond the convertible bond calculations. The volatility of Corning stock has increased in the past year, and makes the call option more valuable, but at the same time Corning appears to be issuing converts at a time when both its share price and stock market valuations are at historic highs. Thus it is imperative that the student "have a view" on the sustainability of stock market valuations and the outlook for Corning.

In February 2000, a managing partner of a U.K.-based private equity fund, Palamon Capital Partners, faced the decision of whether to invest in an Italian software company, TeamSystem, S.p.A. The rationale for this investment was a belief in the rapid future consolidation of the enterprise software industry in Italy, in combination with improvements in operating performance believed to arise from a stronger investor orientation after the transaction. The transaction entailed a leveraged recapitalization of the target that would significantly change its ownership, control and leverage. The task for the student is to evaluate the attractiveness of the investment, based on a strategic appraisal, a valuation of the target with its new capitalization, and an assessment of the proposed deal structure.

New options on weather from Enron are described, in particular floors, swaps, and caps on heating degree days. An electric utility is considering whether to purchase a weather derivative to offset the risk of low volume of kilowatt hours. After understanding the nature and purpose of the contract, students will structure the option in preparation for valuing it.

Spreadsheet supplement for case UV0620.

This case may be taught singly or used as a merger-negotiation exercise with "Chrysler Corporation: Negotiations between Daimler and Chrysler" (UV0085). Set in February 1998, the case places students in the position of negotiators for the company; their task is to value both firms, assess the potential earnings dilution of a combination, and negotiate a detailed agreement with their counterpart. The case can be used to explore such interesting negotiation issues as determination of a share-exchange ratio, treatment of major stockholders, and structuring a deal. Also, the case and exercise can be used to spark a discussion of acquisition in comparison with strategic alliance, or other less formal models of combination.

This case provides a vehicle for discussing analytical approaches to understanding bidding strategies in a hostile tender offer setting. In 1997, Hilton Hotels Corporation offered to acquire ITT Corporation in an unsolicited tender offer. ITT resisted in several ways. At the date of the case (July 17, 1997), ITT announces a restructuring of the firm aimed at delivering about $70 a share to its shareholders. The task for the student is to understand why Hilton's takeover attempt has failed thus far, and what the possible responses might be at this stage. The case contains a completed valuation analysis of ITT (prepared by the casewriter), which suggests that ITT is worth, at most, $89 a share to Hilton. In preparing a possibly higher bid for the firm, the student must weigh the probability of another bidder's entering the fray and that competitor's bid price. The instructor can use this setting to compare the target shareholders' outlook with the classic "prisoner's dilemma" and to discuss the expected value of not tendering--both concepts are important in devising a bidding response.

This technical note presents an overview of the process by which an analyst can assess the financial policy of a firm. It defines several dimensions of financial policy, offers three benchmarks against which to evaluate the policy, and reviews the FRICTO framework with which to assess proposals for future financial policy.