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Spreadsheet Supplement for case 293117

Richard Munro, Time Inc.'s chairman and CEO, must respond to a hostile tender offer from Paramount Communications. Paramount conditioned its bid on cancellation of Time's plans to merge with Warner Communications. Several months before the hostile Paramount bid, Time had announced its plans to merge with Warner after careful consideration of a comprehensive list of possible partners, including Paramount. The Board endorsed Munro's decision to merge with Warner because the two firms held a wide range of complementary assets. If Time continued with its plans to merge with Warner, Time's shareholders would forgo at least $175 per share in cash, and possibly more. On the other hand, a merger with Paramount was not part of Time's long-term strategy. Munro must recommend a specific course of action to the Board at its emergency session. The case is written from the viewpoint of Time's managers. Should Time's managers resist the Paramount bid?

Managing the risk of changing prices of gold is central to the business strategy of American Barrick Resources Corp., one of North America's largest and most successful gold-mining firms. The case contrasts this firm's hedging policies with those of its rivals that do not hedge and details the wide range of hedging products (gold loans, forwards, options, spot deferred contracts) used to manage price risk. In 1992 the management of American Barrick is pleasantly surprised by unexpected new gold finds, but this new production places demands on the firm's hedging program and tests the firm's commitment to hedging when prices of gold and of many hedging vehicles are unattractive.

Supplements the (A) case. Designed as a class handout. Allows students to evaluate the Board's response.

To develop the next generation of risky products, ALZA, a mature and profitable biotechnology firm specializing in drug delivery systems, must raise $40 million. Organizational constraints and competitive concerns demand that the work be done inside the firm. However, accounting considerations and concerns about shareholders' reactions to the introduction of new risks to the firm lead the CEO to consider off-balance-sheet means to finance the new venture. To finance the new venture, the firm creates a new financing vehicle: a unit consisting of callable common stock plus warrants. This case examines the CEO's decision leading up to the issue of the units and the establishment of a new research and development subsidiary.

Supplements the (A) case. Describes the CEO's decision.

Supplements the (A) case. Describes the implementation of the CEO's decision.

Supplements the (A) case. Describes the aftermarket performance of the units.

Spreadsheet Supplement for case 293124

In February 1991, the managers of this multinational specialty publishing company proposed to take the company private in a leveraged buyout (LBO). In addition to the ordinarily interesting features of the typical LBO, this transaction was the first to be denominated in ECUs and one of the few in which the managers provided all the equity financing. The tasks for the student are to value the company and evaluate the attractiveness of the transaction from the standpoints of seller, senior lender, mezzanine lender, and equity investor/manager. The case can be used to (1) exercise students' skills in valuing a highly leveraged company, (2) illustrate how deal structuring can mitigate potential agency problems, and (3) explore the problems and possible solutions associated with financing a global firm.

An analyst at General Motors charged with managing the structure of the automaker's debt must decide whether and how to modify the interest rate exposure of the firm's most recent debt offering. The analyst must take into consideration GM's liability management policy guidelines, the firm's existing interest rate exposure, his expectations of interest rates, and the wide range of interest rate products available. He must decide whether to leave the fixed-rate instrument unchanged or to enter into a swap, cap, interest rate option, or swap option transaction.

In 1989, the Walt Disney Company financed its major European theme park and real estate development using a variety of financing tools and techniques that, when bundled together, amounted to a project financing. The case recounts the details of this financing and invites students to evaluate the financing from various standpoints, including those of the Walt Disney Company, the government of France, European equity investors, and European banks. The resulting opinion about the attractiveness of the project ultimately hinges on beliefs about European market demand for an American-style theme park. The case may be used to exercise students' skills in valuation analysis, to illustrate techniques for financing major real-property projects, and to explore the creation and transfer of wealth in such projects.

In December 1990, a banker reassesses a borrower that, at the time of its leveraged buyout 18 months earlier, seemed to have such a promising future. Now the borrower is in severe financial distress. The tasks for the student are to evaluate competing proposals for restructuring the firm and to recommend a course of action for the bank. This is the "stand-alone" version of the second part of a two-case sequence. Students should not be exposed to this case until they have finished discussing the A case (UVA-F-1012).

Supplement for case UV2314

Spreadsheet for case UV2151

Day after day, CFOs and investors alike make decisions based on the principles of modern financial theory. Developed in the decades after World War II, these theories began as isolated academic concepts. Today they shape our corporations. Now the thinking is changing. As a result of the increasing globalization of the markets and the increased technological firepower of its participants, there is both a pragmatic and philosophical attack being waged against both the efficient market hypothesis and the capital asset pricing model. As such, the benchmarks and yardsticks that used to matter to managers--such as the well-known measure of stock price volatility, beta, and the ubiquitous credit rating--are now in question. There are, however, only the sketchy outlines of the new philosophies and practices that might eventually become post-modern theory.

The Brent Walker Group completed the largest out-of-court restructuring in the United Kingdom. After overexpansion in the 1980s, the company pursued a large acquisition financed with debt and then encountered falling asset prices. With the assistance of the Bank of England, the company reached an accommodation with its lenders involving deferral of interest and conversion of debt to equity. The case presents the negotiating challenges faced by the company's creditor classes and portrays the distinct roles of management, shareholders, and directors in U.K. restructuring. When studied in comparison with U.S. restructuring practices, the situation provides an interesting example of an international reorganization.

A new director of this small brewery must prepare to vote on three issues coming before the board of directors the next day: (1) approval of the financial plan for 1993, (2) quarterly dividend declaration, and (3) incentive-compensation plan for the marketing manager. The tasks for the student are to evaluate the past and prospective financial performance of the company and to assess the extremely liberal credit and inventory terms the company is extending to its distributors. The objective of the case is to introduce and exercise tools and concepts of financial-statement analysis. Perhaps the biggest insight gained by students concerns the link between incentives and financial performance: in this case, the marketing manager is motivated to build sales volume, which he accomplishes by a dramatic buildup in receivables and inventory.

In January 1993, the senior management committee of this company has to decide which major projects the company should fund for immediate implementation. The board of directors arbitrarily set a limit of European currency units (ECU) at 80 million to spend on capital projects in 1993. But various managers have proposed projects totaling ECU208 million. Students must evaluate the completed discounted cash flow (DCF) analyses presented along with qualitative factors (mainly the strategic considerations and the internal politics of the company) and choose the projects to be approved.