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Provides a brief background on the history of credit agencies in the United States. Focuses on the mature process of data collection on an American consumer and how credit agencies share the information to determine proper credit risk and worthiness of a consumer. The American system as defined in this note can be contrasted against the lack of developed systems in burgeoning economies and help to better understand the capital markets of society.

On October 3, 2005, Washington Mutual acquired Providian Financial Corporation, the ninth-largest credit card issuer in the U.S., for $6.5 billion. At the time, Providian had approximately 10 million customer relationships and a balance of $18.6 billion. For some observers, the transaction was merely the end of another chapter in the history of the fast consolidating credit card market. For Providian CEO Joseph Saunders, it was vindication of four years' hard work in turning around a company that many thought was close to bankruptcy.

Since 2004, Philip Yea, the first outsider ever to lead 3i Group, one of Europe's largest publicly listed private equity firms, has been trying to help the far flung organization become more of a streamlined partnership even as it functions around the globe. As he considers 3i's performance through the first quarter of 2006 (3i's fiscal year 2006), he must balance his satisfaction at the firm's results and progress in the recent buoyant market with the question of whether the firm's people, strategy, and goals are sufficiently aligned that it can survive and prosper in the coming market correction.

Spreadsheet Supplement for case 807006

The protagonist is Bruce Dunlevie, a co-founder of venture firm Benchmark Capital. In early 2007, Dunlevie and his partners are faced with whether to expand their firm into China and/or India, as many other well respected VC firms had been doing at the same time. Despite having two existing and successful satellite offices in the UK and Israel, the partners are not convinced that further expansion makes sense. Therefore, to follow logic, they are also considering whether to spin out the existing satelittes to be independent entities or keep them as part of the Benchmark franchise.

After acquiring F+W Publications from a rival private equity firm, ABRY Partners became increasingly convinced that they had been deceived by the sellers about the profitability of the company. ABRY must determine whether they were deliberately misled, what courses of action are available, and which they should pursue. Considerations include a mix of legal, ethical, and business issues.

In late 2004, Hilmi Panigoro, CEO of the publicly traded Indonesian oil company Medco Energi Internasional, is striving to regain majority control of the company his brother Arifin founded in 1980. The Asian financial crisis of 1999 led to a major restructuring that left the Panigoros with a 34.1% equity stake in Medco. Two other large shareholders are now looking to sell their combined stake of 50.9% and have selected Temasek, the Singapore government's investment arm, as their preferred bidder. The Panigoros have a right of first refusal, but only a four-month window to raise the capital needed to head off Temasek's bid. The Panigoro brothers are considering a two-stage plan: a leveraged buyout (LBO) to be followed by a secondary equity offering at a share price high enough to enable them to repay the loan and maintain majority control of their company. As attractive as the plan seems, they worry about the high cost of the loan and the risk of the offering failing. In January 2005, with no time left to consider alternative financing plans, the Panigoro brothers have to decide whether to go ahead with the plan or lose control of Medco to Temasek.

The Khemka family of India--founders, managers, and majority owners of Russia-based SUN Brewing--faces a difficult decision in 1998. Following the ruble's massive devaluation in August 1998, the stock price of SUN brewing, which is publicly listed on the Luxemburg exchange, has declined by over 90%. Only two months earlier they had planned a $200 million to $400 million equity and debt offering on the New York Stock Exchange to finance major investments in the face of increased competition from international beer companies in the Russian market. However, the ruble devaluation and the deep financial crisis that has ensued has led to the cancellation of the proposed CYSE listings--and to a $40 million bridge loan that now needs to be repaid. The family is debating the merits of two main alternatives: To bring in a major global beer company as a strategic partner at this difficult time or to stay on as controlling owners, inject millions of dollars into the company from other parts of the family business group, and weather the storm until better terms can be expected from any outside provider.

Executives have developed tunnel vision in their pursuit of shareholder value, focusing on short-term performance at the expense of investing in long-term growth. It's time to broaden that perspective and begin shaping business strategies in light of the competitive landscape, not the shareholder list. In this article, Alfred Rappaport offers 10 basic principles to help executives create lasting shareholder value. For starters, companies should not manage earnings or provide earnings guidance; those that fail to embrace this first principle of shareholder value will almost certainly be unable to follow the rest. Additionally, leaders should make strategic decisions and acquisitions and carry assets that maximize expected value, even if near-term earnings are negatively affected as a result. During times when there are no credible value-creating opportunities to invest in the business, companies should avoid using excess cash to make investments that look good on the surface but might end up destroying value, such as ill-advised, overpriced acquisitions. It would be better to return the cash to shareholders in the form of dividends and buybacks. Rappaport also offers guidelines for establishing effective pay incentives at every level of management; emphasizes that senior executives need to lay their wealth on the line just as shareholders do; and urges companies to embrace full disclosure, an antidote to short-term earnings obsession that serves to decrease investor uncertainty, which could reduce the cost of capital and increase the share price. The author notes that a few types of companies--high-tech start-ups, for example, and severely capital-constrained organizations--cannot afford to ignore market pressures for short-term performance. Most companies with a sound, well-executed business model, however, could better realize their potential for creating shareholder value by adopting the 10 principles.

Spreadsheet Supplement for case 107025

Designed to explore recognition issues in the context of a potential market downturn. In late 2000, Lucent Technologies reports multiple revisions to its recent financial results due to revenue recognition problems, leading to a dramatic decline in its stock price. This disclosure comes in the wake of a period of spectacular growth for the communications equipment industry during the 1990s. From the perspective of a securities analyst covering the industry, are the troubles at Lucent indicitive of larger revenue recognition issues throughout the industry? Facilitates a discussion of potential early warning signs of the risks faced by Lucent's competitors.

An abstract is not available for this product.

This case captures the cash-flow and working-capital management problems typical of small, growing businesses. At the end of 2015, Bob and Maggie Brown have completed their third year of operating Horniman Horticulture, a $1-million-revenue woody-shrub grower in central Virginia. While experiencing booming demand and improving margins, the couple is puzzled by their plummeting cash balance. The case highlights the difference between cash flow and accounting profits, as well as the common negative effects of growth on cash flow. The case provides a forum for establishing appreciation for the relevance of free cash flow to business owners and managers, introducing financial ratio analysis, developing the concept of the cash cycle and working-capital management, and motivating the use of financial models.

In late 2004, Hilmi Panigoro, CEO of the publicly traded Indonesian oil company Medco Energi Internasional, is striving to regain majority control of the company his brother Arifin founded in 1980. The Asian financial crisis of 1999 led to a major restructuring that left the Panigoros with a 34.1% equity stake in Medco. Two other large shareholders are now looking to sell their combined stake of the 50.9% and have selected Temasek, the Singapore government's investment arm, as their preferred bidder. The Panigoros have a right of first refusal, but only a four-month window to raise the capital needed to head off Temasek's bid. The Panigoro brothers are considering a two-stage plan: a leveraged buyout to be followed by a secondary equity offering at a share price high enough to enable them to repay the loan and maintain majority control of their company. As attractive as the plan seems, they worry about the high cost of the loan and the risk that the offering might fail. In January 2005, with no time left to consider alternative financing plans, the Panigoro brothers have to decide whether to go ahead with the plan or lose control of Medco to Temasek.

The Khemka family of India--founders, managers, and majority owners of Russia-based SUN Brewing--faces a difficult decision in 1998. Following the ruble's massive devaluation in August 1998, the stock price of SUN Brewing, which is publicly listed on the Luxemburg exchange, has declined by over 90%. Only two months earlier they had planned a $200 million to $400 million equity and debt offering on the New York Stock Exchange to finance major investments in the face of increased competition from international beer companies in the Russian market. However, the rouble devaluation and the deep financial crisis that has ensued has led to the cancellation of the proposed NYSE listings--and to a $40 million bridge loan that now needs to be repaid. The family is debating the merits of two main alternatives: To bring in a major global beer company as a strategic partner at this difficult time or to stay on as controlling owners, inject millions of dollars into the company from other parts of the family business group, and weather the storm until better terms can be expected from any outside capital provider.

Discusses the reasons and uses of triangular or three-party mergers to complete a business acquisition or tax-free corporate reorganization.

In July 2004, J.P. Morgan Partners (JPMP), the private equity arm of JPMorgan Chase & Co., was in the midst of formulating the final terms of a public-to-private buyout proposal for AMC Entertainment Inc. (AMCE), a publicly traded movie theater company.

Describes Housatonic Partners' investment in ArchivesOne, a records management company. The original investment was made in 1998, and subsequent investments are made by Housatonic. In 2005, as the life of the investment fund is coming to an end, Housatonic must work with management to decide when and how to exit.

At the cross-section of capital markets and the catastrophe insurance space stands the hedge fund Nephila. Nephila must decide how best to take advantage of the newly presented market opportunities post hurricanes Katrina, Wilma, and Rita. Nephila has a plethora of options as it brings capital markets understanding to the insurance space. Nephila can easily trade in and out of insurance products and is not subject to regulatory restrictions. Yet, Nephila only capitalizes 1% of the entire catastrophe reinsurance market. What is the best way to grow?