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Spreadsheet Supplement for case 289001.

Concerns the first leveraged buyout to occur in Japan. Analytic tasks include a valuation of the company and an assessment of its debt capacity. Also provides opportunities to discuss agency costs associated with alternative capital and equity ownership structures, differences between U.S. and Japanese corporate finance practices, and the potential role of leveraged buyouts in the restructuring of Japanese manufacturing.

Colt Industries is a conglomerate that is considering undertaking a leveraged recapitalization. The deal would involve a large one-time dividend to stockholders, which would be financed by over $1 billion in new debt. Unlike in an leveraged buyout, however, public shareholders would still retain an equity interest in the company. Shareholders in the company's employee savings plan would not receive the dividend, but instead would see their percentage ownership in the company substantially increased.

Spreadsheet Supplement for case 289012.

Capital markets now demand that CEOs monitor the "value gap" between what their company's shareholders realize now and what they might be able to get. As the pool of available funds grows and the number of easy targets declines, acquirers will turn their attention to companies with smaller and smaller value gaps. CEOs must measure the value gap and track it periodically. To manage the gap, CEOs can choose one or more of three basic options: improve operations, leverage the company's capital structure, or sell business units to the "best buyers."

An Tai Bao is the world's largest open-pit coal mine and is located in China's Shanxi province. After eight years of planning and negotiating, Occidental Petroleum, the foreign partner in the deal, is about to sign an ownership and financing agreement for $475 million that involves $20 million of its own equity and limited recourse. The deal contains a number of unusual features including the tying of recourse to nonconcurrent, partial competition tests, and a covenant forcing sponsors to buy back the entire project from the joint venture owning it in the event of postcompletion default. Students are required to determine if the terms of the deal are attractive to each of the parties involved.

Excess cash and unused debt capacity make up a company's financial inventory. Too little can be crippling. But too much costs money and invites takeovers. To determine the proper balance, CFOs must understand three factors: the cost of holding reserves, the risks that reserves protect against, and the needs that reserves may have to cover.

The treasurer of Gaz de France is an aggressive, proactive manager of his company's liability structure, running one of the largest swap books of any non-financial corporation in the world. Currency futures, interbank forwards, and currency options are also frequently used to control the company's multi-currency liability structure. This case prompts students to explore the reasons and ramifications of such aggressive liability management, with particular attention being paid to the administrative challenges created by such a large swap position. An important decision has to be made regarding the management of the swap book in the face of the depreciating dollar, the decline of the franc against the German mark, and a possible realignment of the European Currency Unit. This is a comprehensive case involving swaps, debt policy, and foreign exchange exposure that is best taught after students have been introduced to these topics.

Spreadsheet Supplement for case 288030.

The objective is to delineate on methodology for measuring the risk associated with financial leverage and estimating its impact on the cost of equity capital.

Considers the predicament of Richardson-Vicks in 1985. After 80 years of growth and independence, the company is the object of takeover rumors. The objective is to determine why these difficulties have arisen and what, if anything, Richardson-Vicks can do about them.

Considers takeover defenses erected by Richardson-Vicks. The objective is to determine whether these defenses can by breached by a determined suitor, like Unilever.

Spreadsheet Supplement for case 288049.

Spreadsheet supplement for case 288048.

Considers a firm whose investment strategies have essentially run out. Walt Disney's original visions and goals have all been fulfilled and after his death no new ones are forthcoming. Disney faces repeated takeover attacks and is forced to either set new corporate goals and formulate a financing strategy or to slowly liquidate the firm's remaining value through expensive merger defenses. The case concentrates on the use of greenmail, a much criticized defensive tactic which Disney uses trying to buy enough time to fix its investment and financial strategies. The firm's independence is retained and value is enhanced although current management is replaced.

Features a firm with a strong, successful, clearly-defined product market strategy. In 1982, this strategy was augmented by new management to include other, conflicting goals. This has an immediate negative impact on the stock market's evaluation of Goodyear's stock and attracts the attention of corporate raider Sir James Goldsmith. In an attempt to ensure independence, Goodyear management responds by returning the firm to its previous investment strategy: selling off new investment, dramatically increasing debt, and repurchasing stock. The case emphasizes that the firm with the greatest potential value gain is most vulnerable to a takeover attempt.

Provides a simple framework for analyzing expected exchange rate movements. Basic parity and equilibrium conditions are presented including purchasing power parity, forward parity, interest rate parity, the domestic Fisher effect, and the international Fisher effect (Fisher open). Empirical evidence about these conditions are discussed. References are provided.

Pension portfolio management focuses on the balance between risk and return on assets held. With a new ruling of the Financial Accounting Standards Board, pension fund managers and sponsors must also pay close attention to the surplus--the difference between assets and the present value of the fund's obligations to current and future retirees. FASB 87 mandates reporting of the fund surplus in terms of the net present value of the liabilities according to market interest rates on long-term bonds. Thus the sponsor must ask which assets best match the variability pattern of the liabilities. The low risk of bonds makes them attractive for meeting the predictable obligation toward today's work force and present retirees but unattractive for meeting the uncertain obligations toward tomorrow's work force. Stock and real estate are better investments for these obligations. The goal is to define the true pension fund risk, long term as well as short term. Then management can decide on the trade-off between risk and expected return.

In early 1985 the CEO of Waste Management, Inc. is deliberating over several equity-linked debt alternatives to finance the retirement of debt. The teaching objective is to expose students to various forms of equity-linked debt financing alternatives.

What may be appropriate for managing the finances of large public corporations doesn't necessarily (or often) fit private companies. Standard financial statements are unreliable when money moves freely between the business and owner. And rules of thumb for investment decision making and growth aren't useful either. When a company is largely operated as a vehicle for a family--to provide jobs, security, flexibility, and access to opportunities that suit the family as much as the market--conventional financial protocols don't always matter.