Cases in Corporate Finance FIN 4005 Section 001 Spring 2014

Professor: Contact Information: John Phelps, Ph.D. Department of Economics Main Office: Lindner College of Business E-mail: john.phelps@uc.edu Cell Phone: (513) 231-3813 (8 am to 10 pm) 1:00 1:45 pm, Tuesday and Thursday. TAs hours to be announced. A Q&A discussion forum is available to get instructor and student feedback.

Office Hours:

Pre-requisites: FIN3080C or 22FIN380 or 22FIN351 Format This is a student-centered class, with discussion and student presentations being the dominant component. A teaching Assistant will be available with office hours and tutoring sessions Time Frame This is a 15-week course. The first day of the course begins on 1/07/2014 and the last day is 4/17/14. There is no Final Exam. Students are expected to follow the course outline and engage and participate in the activities outlined in each weekly lesson. Students are required to keep pace with class, follow the course outline, and complete necessary readings and assignments by the designated due date.

Course Materials: Case Studies in Finance: Managing for Corporate Value Creation, 7/e Robert F. Bruner, Kenneth M. Eades, Michael J. Schill, Darden School of Business, University of Virginia ISBN: 007786171x Copyright year: 2014

Course Overview: This course stresses the application of finance theory and methods to real business situations. Students will study problems of financial planning, capital structure, cost of capital, capital investment decisions, and corporate acquisitions. Course Objectives: Baccalaureate Competencies Critical Thinking Effective Communication Knowledge Integration Social Responsibility The objective of this course is to provide the student the opportunity to hone their skills in corporate financial decision making through the use of case study analysis. Topics examined will include working capital management; cash budgeting and forecasting; short-term financing; long-term financing strategies and financial innovation; the cost of capital and capital budgeting; and mergers, acquisitions, divestitures and corporate control. Underlying themes include valuation, financial analysis, risk management and general management principles. A great deal of emphasis will be placed upon analytical skills, the use of persuasive argument and communicating advice, decisions and action plans. Thus a significant portion of the evaluation will be based on class participation and the professional presentation of reports.

Performance Evaluation: Cases (3 25%, 20%, and 20%.) Presentation Participation TOTAL

65% 10% 25% 100%

Your final grade for this class will be determined using the following scale: A B+ C+ D+ 95-100 87-89 77-79 67-69 F below 60 AB C D 90-94 83-86 73-76 63-66 BCD80-82 70-72 60-62

Dates and timeframes are not flexible Extensions will not be given for reasons other than illness or injury (confirmed in writing by a physician) or immediate family tragedy (with appropriate documentation). Alternate arrangements will not be made to accommodate vacation plans or work schedules, to allow more time to study, conflicts with other courses, or because you have another test scheduled at a different time on the same day. To be considered for an extension for any assignment, you must notify the Professor before the timeframe for completion has ended. Any notifications made after the timeframe for completion has ended will not be considered. Missed assignments will receive zero points. Online Assignments: Exercises will be available as indicated on the assignment sheet and in blackboard outline. Extensions will not be given for reasons other than illness or injury (confirmed in writing by a physician) or immediate family tragedy (with appropriate documentation). Exceptions will not be made to accommodate vacation plans, work schedules, or conflicts with other courses, Academic Integrity: All students are expected to conform to the Universitys Code of Conduct and honor the following pledge: On my honor I pledge that this work of mine does not violate the University of Cincinnati Student Code of Conduct provisions on cheating and plagiarism Further information on the University Of Cincinnati Code Of Conduct can be found at http://www.uc.edu/conduct/Code_of_Conduct.html

Preparation and Communication: This course involves a lot of reading; you should read the assigned material in advance so you can fully understand the lectures and can participate in the discussion. Read Note to the Student: How to Study and Discuss Cases, Bruner pgs. xxv to xxxi. General advice: 1- Make sure you understand the material after each topic is covered. If the point of some topics is not clear, ask questions in the Q&A Forum or call. 2 You are encouraged to supplement this textbook with any other sources of news or examples related to economics. Online resources are also available with each case; it is strongly encouraged that you take advantage of these resources to supplement your textbook preparation. Any other announcements related to this course will also be posted to Blackboard. Please be sure to visit this site often throughout the quarter, as you are responsible for course-related information posted at this site. Emails sent to the class will be sent through Blackboard using the email address you supply within your profile; please make certain you have the appropriate email address posted on your Blackboard account. Classroom Conduct: Please be courteous to your classmates, all opinions and ideas are respected in this class, and any unprofessional or inappropriate behavior will not be tolerated. We will operate this class with an understanding that it is okay to disagree with another students opinion, but it is not okay to insult or condemn others because of their opinions. There are scheduled Office hours for this class. I will monitor the Q&A Forum daily, along with my email. I will respond to both within 24 hours, if your question is urgent please dont hesitate to call 513.231.3813, between 8 am and 10 pm. CASE STUDIES and GRADING Case Submissions (3, 25/20/20; totaling 65 %) Everyone will be assigned three cases to be formally written up and submitted. One case will be assigned from each of the three blocks indicated in the Detailed Class Schedule on the last page of the course outline. There will not be formal presentations of the cases. Each case will form the subject of a class discussion. Those assigned the case are expected to have done a substantial analysis while all other class members are expected to contribute to the case discussion. While the grade will be based primarily on the formal write-up of the case, it may be influenced by your classroom performance in the case discussion.

The best case will be worth 25% of your course grade, with the others being weighted at 20%. Participation (25 %) You are expected to be prepared for every class, able to discuss the cases and challenge and question the analyses of those submitting the case. Participation is based on your participation during the case discussions related to the cases that you are not submitting. Note that attendance is a pre-requisite to participation, not a component of participation. To participate effectively, you must have read and analyzed each case prior to class. That will mean having performed some meaningful quantitative/financial analysis as well have given some serious thought to the issues in the case. After every class, I assess each students participation using a 0-4 scale: 4 Outstanding: Was as prepared to discuss as any student who was writing-up the case 3 Very Good: Made some insightful comments that contributed significantly to the case discussion 2 Adequate: Made some contribution 1 Silent attendance: Attended but said nothing relevant to the case discussion. 0 Absent. While these are ordinal numbers, nevertheless I do average them. A student that has 100% attendance and averages 3.0 will be in at A range for participation, while a 100% attendee with a 2.0 average will be a B+. More than two unexcused absences will potentially lower the participation grade below 60%. Note, in three-hour sessions (BU663) each half of the session is considered a class for the purposes of assessing participation. Useful contribution on the Bb discussion board, such as answering another students question, could be factored into class participation. Presentation (10 marks) You will be required to make a brief, 5 minute, presentation at the start of class for one of the cases that you are presenting. The presentation will consist of a synopsis of your recommendations and analysis. An effective model of a good presentation would be about 2 minutes orally presenting your Executive Summary with about 3 minutes of highlighting the key aspects of your analysis. Excessive length or brevity will be penalized.

EXPECTATIONS REGARDING WRITTEN SUBMISSIONS To keep the submission of material consistent, I am imposing a standardized printing format for all material handed in a distributed in this course. Font: Arial 12 point (Spreadsheet exhibits can be as small as 9 point) Margins: 1 inch (2.5 cm) all around Page Size: Letter, 8 x 11. (No A4, No Legal size)

Exhibits can be printed in Landscape mode with the top to the left (binding) side (Spreadsheet exhibits can fold-out on ledger-size (17x11) paper) Spacing: Double, except Appendices Covers: Binding: None Stapled, Top Left Corner

This outline was formatted to these specifications. Cases are to be written with the same care and attention as any professional business report. The presentation should be clean, neat and concise, without grammatical or spelling errors. Contents of a case report are expected to be: 1. 2. 3. 4. 5. 6. Title page (Case Title, Your Name & SID, My Name and Date of Submission) Executive Summary (separate page) Table of Contents Body of the report A separator page with Appendices Appendices.

Executive Summary An executive summary is a document that is provides the reader with a quick overview of what is contained in the ensuing report. It is a document that an executive will read before passing the entire report on to an underling to review in detail. For a presentation or analysis of this magnitude, it will not exceed one (1) page double-spaced. You may assume that the reader is familiar with the facts of the case. In one paragraph, you will explain what was analyzed, what techniques were used, and what alternatives were explored. The second paragraph will list the recommendations and implementation, often in bulleted form.

Body of Case The body of the case will be no longer than seven (7) pages, typed, doublespaced. The usual headings will be: 1. 2. 3. Situational Analysis Alternatives, including the analysis of these alternatives. Recommendation and Implementation

The situational analysis deals with the problem(s) in the case and the situation surrounding the case. It should help the analyst and reader arrive at the alternative actions that could be followed. When presenting the alternatives, some prefer to list the alternatives first and then analyze them; others prefer to analyze each alternative as presented. I am indifferent. Do not include significant amounts of data, large tables, etc. in the body of the cast: Relegate these to the Appendices. The recommendation should follow from the analysis: The recommended alternative will be one of the alternatives analyzed. You should be as practical as possible suggesting an implementation of the recommendation. Appendices As you will not clutter the body of the case with numerical analyses, data, etc, these will appear after the body in a well-organized and labelled appendix. Graphs, tables, maps, et cetera must be self-explanatory. They are of little use to the reader if they need you to explain them line-by-line. Every appendix must have a purpose, and must be referenced in the analysis. Do not reproduce case Exhibits from the book; simply refer to them. Exhibits will be understood to refer to the exhibits in the case, whereas Appendices will be understood to refer to the addenda that you create as part of your analysis. FIPPA Notice Being that this is a discussion-based course where a significant portion of you grade is for class participation, your identity will be known to classmates. No other personal information will be shared with the class.

DETAILED CLASS SCHEDULE

Week 1 DATE 01/07 01/09 CASES/READINGS Course Overview Assign Cases Reading: Ethics in Finance Bruner, pp xxxii-xlvii Video: Anatomy of a Hostile Takeover TENTATIVE TOPIC SCHEDULE Course Overview and Setting Themes Ethics in Finance

01/14 01/16

Meet with Group to discuss assigned case Stakeholders Goals #4 FedEx vs. UPS (discussion board #1) #4 FedEx vs. UPS (discussion board #2) BLOCK 1, Weeks 35 Reading 6:The Thoughtful Forecaster Applying Basic Finance Concepts Reading: 13 Best Practices In Estimating the Cost of Capital: Survey and Synthesis #11 Horniman Horticulture #12 Guna Fibres #16 Teletech Corporation Financial Analysis and Forecasting

01/21

01/23 4 01/28

01/30

The Cost of Capital

02/04 02/06

#17 The Boeing 7E7 #20 Target Corporation #24 Victoria Chemicals A This week, we examine the impact that options have on the valuation of projects and companies, first through a lecture and then in a case for class discussion Capital Budgeting

02/11

02/13

Lecture: Real Options

02/18

#25 Victoria Chemicals B BLOCK 2, Weeks 710 Reading: 31 Introduction to Debt Policy and Value Reading: 32 Technical Note: Structuring Corporate Financial Policy: Diagnosis of Problems and Evaluation of Strategies. In this block, we will examine issues related to obtaining the funds that the firm needs to operate and grow which includes discussion of some of the issues raised by Professors Modigliani and Miller on the (ir)relevance of capital structure and dividend policy. We will also examine valuation of a firm in an Initial Public Offering. Capital Structure

02/20

02/25 02/27

#34 Wm. Wrigley Company #35 Deluxe Corporation #29 Gainsboro Machine Tools #30 AutoZone, Inc.

03/04 03/06

Dividends and Financial Policy

10

03/11 03/13

#52 Purinex #45 JetBlue Airways IPO No Class

Raising Equity

11

03/18-20

Spring Break In this block we will examine issues related to structuring financings, including the use of options, and structuring transaction in the purchase and sales of entire companies. Acquisition transactions can be either friendly and negotiated, or hostile with a potential bidding war. In either case, price determination and bidding strategy are important issues. Structuring Financings and Deals with Options

12

03/25

BLOCK 3, Weeks 12-15 Reading: 42 Methods of Valuation: Mergers and Acquisitions Reading: 48 Hostile Takeovers: A Primer for the Decision Maker

03/27 13 04/01 04/03 14 04/08 04/10 15 04/15 04/17

#47 The Timken Company #41 MoGen, Inc #51 Palamon Capital Partners: TeamSystem S.p.A. #49 Hershey Foods Corporation #50 Flinder Valves and Controls #48 Sun Microsystems Wrap-up

Valuation Analysis

Mergers and Acquisitions