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An asset management company must replace the manager of its two signature mutual funds, who is about to retire. Two candidates have been short-listed. The management team is divided and cannot decide which of the two candidates would make the better mutual fund manager. The retiring manager presents a linear regression model to examine success factors of mutual fund managers. This linear regression is the starting point for the subsequent analysis.

In the early 1790's, a flood of newly issued public and private securities sparked an investment boom in the nascent United States. In New York, the bustling commercial district along Wall Street emerged as the center of the city's securities trade. One of the many Americans drawn into the frenetic and largely unregulated securities market was William Duer, who ultimately became a major player on the Street. As it turned out, however, Duer's financial dealings proved unsustainable, and his financial collapse helped to bring the securities boom to a halt. Shocked by the widespread devastation wrought by Wall Street's first panic, the New York legislature acted quickly to ban outdoor securities auctions and a popular class of financial instruments known as "time bargains," both of which were thought to have contributed to the boom and bust on Wall Street. Facing public outrage along with the new legal restrictions, New York's top brokers had to decide whether a new system for securities trading was needed and, if so, what it should look like.

The New York State Legislature had come to a standstill in 1829 as lawmakers refused to charter any new banks or recharter any existing banks. Four of New York's forty banks had failed since 1825, and many legislatures believed that a significant change in the banking regime was needed to shore up the state's financial systems. Others, however, feared that a major change in the law was too risky, especially since over three-quarters of the state's banks held charters that were slated to expire over the next four years. On the table was a completely untested proposal to create a mandatory public insurance fund that would back the banknotes and deposits of every state bank. As bank charters throughout New York State rapidly approached expiration, lawmakers faced a tough decision: should they pass the bill and gamble with the untried insurance fund, or should they go seek a more traditional solution to the state's banking woes?

Banks throughout New York State suspended specie payments (i.e., payments in gold and silver) in May 1837 following the collapse of several state banks, and the onset of a nationwide financial panic. Amid the chaos, the upstart Whigs were able to depose the longstanding Republican majority in the state legislature. Responding to citizen anger, as well as perennial calls for more banking capital, the Whigs drafted a novel "free banking" bill, which would override the established bank chartering mechanism and allow any association with sufficient capital the opportunity to open a bank and issue bank notes (a widely accepted form of paper money at the time). The bill also required that every note issued by a New York bank be fully backed by bonds or mortgages. if enacted, the bill seemed likely to encourage the establishment of many new banks. There was no telling what the economic impact of the bill's special bank note provisions would be. Once the bill passed the legislature, Governor Marcy had to decide whether to sign this radical proposal into law.

Late in September 2001, Hans van Tartwijk, president of Trimp & van Tartwijk Property Development (TvT) of Amsterdam, Holland, was deeply worried about the status of his largest ongoing project; the Amsterdam World Trade Center (WTC). As the discretionary developer, van Tartwijk needed to present his firm's recommendations to WTC owners and municipal stakeholders on how best to manage problems in the renovation of the 27-floor, 60,000 square meter complex. The WTC owners, two Dutch financial institutions, had hired TvT in 1995 to advise out how to best handle their property's under performance, which stood 20% empty and had prematurely aged. 1. Should the Owners sell, perform minimum upgrade or a major upgrade with construction, expansion? 2. What emphasis - commitment made to Green Technologies?

The announcement of merger or acquisition conveys new information to the capital markets. This note describes how the stock prices of a Buyer and Target behave after the announcement of a deal. First, for an all-stock deal that is certain to go through, the note defines accouchement effects and describes the fundamental arbitrage relationship between Target and Buyer stock prices. It shows how post-announcement prices may be used to infer the market's estimate of synergies. It then explains how the betas of the two companies change post-announcement and the arbitrage relationship between prices in a cash-and-stock deal. Finally, it defines event risk and explains how it affects the prices of the Buyer and the Target.

Private equity fund performance is most often reported in a way that exaggerates the truth. A modified calculation gives a more accurate read of performance and can change a fund's relative rank.

Marketers commonly estimate customer lifetime value in order to decide which customers are worth continued investment. But the way companies typically calculate that value is flawed because it overlooks the real option of abandoning unprofitable customers.

Pursuing a merger or acquisition is inherently difficult. Things get even harder when executives are blind to their own faulty assumptions, say Lovallo--a professor at the University of Western Australia Business School and a senior adviser to McKinsey--and three of his McKinsey colleagues. The authors identify biases that can surface at each step of the M&A process and provide practical tips for rising above them--an approach they call targeted debiasing. During the preliminary due-diligence stage, biases abound. To overcome the confirmation bias, aggressively seek evidence that challenges your initial hypothesis about a deal. The best medicine for overconfidence in identifying revenue and cost synergies is to learn from precedents at your firm and others. Avoiding underestimation of cultural differences between your company and the target requires understanding the differences in the ways people interact at each organization. Misjudging the time and resources you need is at the core of the planning fallacy, which you can elude by formally identifying best practices and continually revisiting them. Finally, dilute conflict of interest by soliciting dispassionate external expertise. The bidding phase is vulnerable to the winner's curse, a phenomenon common in auctions. To avoid paying too much for a target, actively generate alternatives to the deal under consideration and develop a set of bidding cutoff rules. After offering an initial bid, deal makers are susceptible to anchoring, whereby they remain attached to their original price estimate, and to the sunk cost fallacy that they've invested too much to stop now. The secret to overcoming both: Use your newly available access to the target's books to better assess the investment case--and change your tune accordingly.

This case deals with efforts by HSBC, one of the two largest banks in the world by market capitalization, to develop a wholesale banking franchise that can effectively challenge those of major universal bank competitors such as Citigroup, as well as dominant "monoline" firms such as Goldman Sachs and Morgan Stanley. It highlights the key dimensions of wholesale financial intermediation: loan syndication and project finance, loan securitization and credit default swaps, equity capital markets, debt capital markets, secondary market trading and other investment banking services for clients, as well as principal trading and positioning. Like most players in this market, HSBC had some notable successes and failures, but on the whole did not succeed in breaking into the top ranks of global investment banks despite clearly having the resources to do so. By understanding what it takes to succeed, students should learn a great deal about the competitive dynamics of this industry.

A new investment analyst with Alpha Value Fund was working on a presentation he was to make to the fund's investment committee, recommending an investment of $50 million in Sanderson Farms. Sanderson Farms was one of the leading poultry processors in the United States. Their stock had closed that day with a share price of $22.62 on the New York Stock Exchange. Eight months ago, the stock was trading at $48 per share. However, with the threat of an epidemic outbreak of avian flu and because of the losses incurred from hurricane Katrina, the share price plummeted. The investment analyst believed that the markets were over-reacting and, based on his analysis, Sanderson Farms presented a value candidate. He knew he had to be persuasive given the fund's preference for stable business and his relative lack of experience as an analyst.

Provides the opportunity to examine the nature and extent of a company's responsibilities to its bondholders, and to develop an enhanced understanding of the challenges in managing contractual obligations, and circumstances under which business leaders might agree to terms outside the contract. Here, the context is a "going private" transaction in Europe, where the financing plan called for the addition to the company's balance sheet of a significant amount of new debt and a reshaping of the capital structure. While leveraged buyouts had been used in Europe for several years, this was likely the first LBO done with a company that had publicly traded investment grade debt outstanding. The increased debt from the deal would increase the risk to the company and to the existing bonds, and the bonds' prices would fall significantly as a result. Focuses on how the private equity buyers might consider the reaction of bondholders to the structure of the acquisition, and on their possible response. Students need to evaluate the transaction and its effect on the bonds, understand the principles governing contractual duties (and how they differ from fiduciary obligations), and account for a business and social culture outside the United States.

Supplements the (A) case.

Supplements the (A) case.

The event arbitrage module includes two simulation sessions. The first simulation focuses on analyzing and evaluating individual merger transactions, while the second simulation emphasizes managing a portfolio of individual positions and the limitations of arbitrage investing in real world capital markets. The underlying data and information are derived from actual merger transactions and have been disguised to prevent students from knowing the outcome ahead of time.

After five months of a fairly relaxed work schedule, Katzu Mizuno found himself wrapped up in an intense analysis. A first-year associate at Lynch Investments, Mizuno had received a morning phone call in February 1996. The caller was his boss, Anna Curti. The subject was a long-time customer, MCI. In contrast to the booming stock market, the performance of MCI's share price had been underwhelming. The board of directors had recently discussed repurchasing shares in order to bolster shareholder value. But cash was tight. If MCI intended to implement a stock repurchase program within the next six months, the company would have to use debt financing to supply the cash. Although the current debt-to-equity ratio of 40% was arguably below the industry average and MCI had excess debt capacity, the decision was far from simple. MCI had contacted Lynch to provide an analysis and recommendation regarding the proposed debt issue and stock repurchase. Curti needed to respond quickly, which gave Mizuno little time. The board planned to disclose the details of its plan to improve shareholder value by the end of the following week. Any recommendation and accompanying analysis would be intensely scrutinized. The heat was clearly on. As Mizuno labored to complete and refine the analysis in front of him, heavy on his mind was how he would relay his findings to Curti. What information and resources would she need in order to advise the client on whether to move forward with the plan?

The case documents an acquisition bid on Air Sahara by Jet Airways. To implement the merger, the two airlines formed a joint management group (JMG) and set March 2006 as the deadline for its completion. The deadline was later extended to June 2006. On 20 June 2006, a day before the expiry of the extended deadline, Jet Airways proposed a new price for the merger deal, leaving Air Sahara with two options: re-price the deal or allow it to expire.

Spreadsheet Supplement for case 808006

Spreadsheet Supplement for case 208033.