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In late January 2000, Cable & Wireless plc (C&W) and Singapore Telecommunications Ltd. (SingTel) unveiled a proposed merger of equals between Cable & Wireless HKT (HKT) and SingTel. Both HKT and SingTel were the leading telecom operators in their local markets, and a merger between the two would create the second-largest full-service telecom provider in Asia outside Japan. Nonetheless, the proposed deal was received coolly in Hong Kong and Singapore, owing to uncertainty over its political and financial ramifications. C&W anticipated that the Chinese government would prefer to keep HKT in local investors' control and had, therefore, considered the possibility of receiving offers from potential suitors in Hong Kong, possibly including Pacific Century CyberWorks Ltd. (PCCW). To respond to SingTel or any other potential bidders, C&W had to prepare itself for the negotiations and find a fair value for its stakes in HKT.

Finova Group, a $14 billion commercial finance company, filed for Chapter 11 in early March 2001, in what was one of the largest U.S. bankruptcy filings of all time and the largest corporate bond default since the Great Depression. While in Chapter 11, Finova became the object of a heated bidding contest. Under the final accepted plan of reorganization, "Berkadia" (partnership of Leucadia National Corp. and value-investor Warren Buffet's Bershire Hathaway) sponsored a massive recapitalization of Finova, providing a secured loan of $6 billion to buy out the unsecured bank and bond creditors. In return, Berkadia received 51% of the reorganized company's common stock and control of the board of directors. No development of new business was planned. A number of entities represented in the case, however, believed that the company might have substantial going concern value and were concerned that Berkadia would acquire the company at an artificially low price. During the bankruptcy, a large fraction of Finova's debt and equity claims were purchased by so-called "vulture investors," who hoped to influence the outcome of the case.

Supplements the (A) case.

United Grain Growers Limited is a grain handling and marketing business with elevator storage capacity in Alberta, Saskatchewan, Manitoba, Ontario and British Columbia. The head of investment at Scotia Capital Markets must make a recommendation to his client regarding the fairness of a hostile offer to purchase the shares of United Grain Growers. He must consider a number of issues such as determining the value of the company using discounted cash flow analysis, value synergies for the company if it were combined with a number of alternative suitors, analyse the potential gains to a merger and analyse data on comparable firms and transactions allowing for a traditional ratio-based valuation of the company. There is a case supplement (product 9B00N021) that describes the outcome of this bid.

Mediagrif Interactive Technologies operates vertical business-to-business e-commerce marketplaces. The chief executive officer must decide whether to go forward with a previously delayed initial public offering. He must consider the effect of changing market conditions and how to value the company in order to determine the price range that would be used.

Describes the history of investment banking.

Describes the major global stock exchanges.

Presents measures of financial performance and health for pairs of Asian and American companies in different industries from 1996 to 2000. The measures include economic profit (also known as Economic Value Added) and other classic measures, such as financial ratios and stock price performance.

In mid-June 2000, Michael Saylor, the CEO of MicroStrategy, is considering an investment of $125 million of convertible preferred stock in his firm by a group of private investors including Citadel Investment Group LLC. The offer comes at a difficult time for the company, as only three months earlier, its stock had reached a record price of $300 per share. At that point the company had registered a $1 billion seasoned equity offering. Shortly thereafter, the company was forced to restate its earnings after running afoul of the U.S. Securities and Exchange Commission (SEC) for its revenue-recognition practices. Although the restatement did not change the company's cash-flow position, it did result in an SEC investigation and the cancellation of the stock offering. In order to meet Saylor's ambitious plans for MicroStrategy, additional funding must be obtained. With public-market funding sources shut off, students must evaluate what the best course of action is for the firm at this moment. Students are asked to evaluate a new form of venture financing called private investments in public enterprises (PIPE). PIPEs differ from conventional floating-rate convertibles in that the conversion price in most cases can only be adjusted downward. The case considers both the pros and cons of these investments.

Spreadsheet Supplement for case 202049.

Asset manager GMO underperforms the market during the 1996-2000 stock market bubble because of the focus on absolute risk. After suffering significant client withdrawals, performance again shines when the bubble collapses. Did they win the battle only to lose the war? This case reviews the quantitative investment process developed by the firm to manage assets and the philosophy behind the models and the firm. Now that performance has recovered, the partners contemplate why so much business was lost. Should they temper further bets to retain more business, or does the fiduciary duty to the client necessarily entail the risk that some clients will leave?

In 2000, Fairfield Communities, Inc. was one of the largest timeshare operators in the U.S. The company's portfolio of resorts consisted of 35 resorts located in 12 states and the Bahamas. Of the company's resorts, 25 were located in destination areas with popular vacation attractions such as Daytona Beach, Florida, and Las Vegas, Nevada and ten were located in scenic regional locations. Fairfield sold and financed vacation ownership intervals (VOI) providing a deeded interest in the use of a fully furnished vacation property of a specific size, at a specific location, at a specific time of the year and a specified length of stay. Customers typically provided a down payment of 16%-18% of the purchase price and financed the balance. Approximately, 80% of Fairfield's customers elected to finance their VOI purchases through the company on terms of up to seven years and at interest rates of approximately 15% per year. To finance its rapid growth, Fairfield securitized the receivables by "selling" them to special purpose entities (SPE). The SPE issued debt collateralized by the receivables. As permitted under U.S. GAAP, Fairfield accounted for the SPE using the equity method of accounting rather than consolidating the SPE's financial statements. Thus, the SPE's debt did not directly appear on Fairfield's balance sheet. An acquisition offer from Carnival Corporation, the world's largest cruise-line company, was withdrawn after Carnival's stock price dropped 42% after the announcement. In November 2000, Fairfield received an offer from Cendant Corporation to acquire the company for $15 per share. Valerie Amphlett, an analyst with Arbitrage Fund, has been asked to examine Fairfield's recent financial performance, including an analysis of the effects of the company's accounting treatment of the SPE to determine whether Fairfield is worth $15 per share.

Autostrada Wielkopolska S.A. (AWSA) is a consortium of 18 firms that won a concession to build and operate Poland's first private toll road. In June 2000, AWSA's chief financial officer, Wojciech Gebicki, is preparing for a meeting with the projects' lead bankers to discuss concerns they have regarding the traffic forecasts and revenue projections. Based on their concerns, the bankers are asking the sponsors to inject an additional e60 to e90 million of equity into the deal, a sizeable increase given the projects' total cost of e934 million and the sponsor's current equity commitment of e235 million. This request presents a serious problem for Gebicki (AWSA) because the concession is scheduled to expire in six weeks if financing has not closed and because he has very few options available to address the problem. This case describes the deal structure and invites students to accept or dispute Gebicki's view that the major risks have been identified, assessed, and mitigated in such a way that the senior lenders are adequately protected without further equity support.

PPL Corp., an electric utility in Pennsylvania, needs to finance $1 billion of peaking plants as part of its new growth strategy. In February 2001, Steve May, director of finance for PPL's Global Division, is responsible for recommending a finance plan. After considering all the options, May decides that a synthetic lease is the best option, but he must decide whether to recommend a traditional or a limited recourse synthetic lease and how to structure the specific terms. The limited synthetic lease, in contrast to the traditional structure, requires a smaller corporate guarantee on the assets and has greater off-credit treatment, which is important given the company's growth strategy and limited debt capacity. However, finding investors willing to accept greater project risk will cost more and take more time. Timing is an issue for May because if he doesn't close the financing within the next two months, PPL will lose a valuable option to buy turbines for its peaking plants. Failure to exercise the option could delay the company's construction schedule, something PPL wants to avoid given the nationwide race to build new generating plants.

In this B case, designed to follow F-1339, the money manager sees that Corning has lowered its forecast for the second time that year. As she reviews the updated valuation she did on the convertible bonds, she wonders if she should sell or continue to hold on to them.

Spreadsheet Supplement for case 202005

After taking 30% of its Conoco oil and gas subsidiary public in the largest domestic initial public offering (IPO) in U.S. history, management of E.I. du Pont de Nemours and Co. (DuPont) is considering divesting its remaining interest in Conoco. This goal is to be accomplished through a relatively uncommon transaction called a corporate "split-off," under which DuPont's shareholders will be given the option to exchange their shares in DuPont for shares in Conoco (but, in contrast to a more conventional "spin-off," they are not obligated to exchange their shares). Management's objective in restructuring is to move DuPont away from its traditional energy and chemical business toward the life sciences (agriculture, biotechnology, and pharmaceuticals).

Supplements the (A) case.