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Bear Stearns, the 85-year-old investment bank, which had survived the Great
Depression, the savings and loan crisis, and the dot-com bust, imploded as a
result of the subprime housing crisis. Less than eighteen months after trading
at an all-time high of $172.61 per share, Bear had little choice but to accept a
humiliating Federal Reserve-sanctioned bailout offer, and the legendary
investment bank ceased to exist. Analysis of the fall of Bear Stearns facilitates
an understanding of the difficulties affecting the entire investment banking
industry: high leverage, overreliance on short-term financing, excessive risk
taking on proprietary trading and asset management desks, and myopic senior
management all contributed to the massive losses and loss of confidence. The
impact on the global economy was of epic proportions.
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Lehman Brothers, one of the five largest investment banks in the US, had grown
increasingly reliant on its fixed income trading and underwriting division,
which served as the primary engine for its strong profit growth. This case
covers the period from the sale of Bear Stearns to JP Morgan to the conversion
into bank holding companies by Goldman Sachs and Morgan Stanley, including
the Lehman Brothers bankruptcy and the sale of Merrill Lynch to Bank of
America. The case explains the new global paradigm for the investment banking
industry, including increased regulation, fewer competitors, lower leverage,
reduced proprietary trading, and potentially-reduced profits.


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This industry and background note covers basic financial analysis techniques.
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Through the mechanics of applying the Capital Asset Pricing Model
(CAPM) and the Weighted Average Cost of Capital (WACC) formula this
case provides an opportunity to learn: 1) the theory underlying the concept
of the cost of capital; 2) the nature and estimation of the risk premium; 3)
how to estimate the cost of capital for various sources of funding; 4) the
factors determining the weights to be employed in computing the cost of
capital, and 5) how the cost of capital is used in investment decisions.


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Since its official launch in January 2000, Baidu.com, Inc. quickly grew to
become the leading Internet search engine in China, and on August 5, 2005
Baidu registered to go public on the NASDAQ Stock Market. Financial
statements and Discounted Cash Flow (DCF) techniques will be applied to
value this high-growth company.


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In January 2007, West Coast Fashions, Inc., a large designer and marketer
of branded apparel, announced a strategic reorganization that would result
in the divestiture of their wholly owned footwear subsidiary, Mercury
Athletic. John Liedtke, the head of business development for Active Gear, a
mid-sized athletic and casual footwear company, saw the potential
acquisition of Mercury as a unique opportunity to roughly double the size of
his business. The case uses the potential acquisition of Mercury Athletic as a
vehicle to teach students basic DCF (discounted cash flow) valuation using
the weighted average cost of capital (WACC).
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In 2002, a money manager is considering how to vote shares in Hewlett-
Packard on the proposal to merge with Compaq. The case presents
information about the strategic and financial motivations of the merger.
Included are completed valuations of both HP and Compaq and detailed
summaries of the leading advocate (Carly Fiorina) and critic (Walter
Hewlett). The case allows students to develop their skills in valuation in an
M&A setting, including valuation the prospective synergies in the deal.


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BCE Inc. (BCE), one of Canada's leading telecommunications companies,
had struggled under its weak stock price performance and low valuation
relative to its comparable peers, and faced increasing pressure from its
largest shareholder, the powerful Ontario Teachers' Pension Plan. This
case provides students with an opportunity to: Assess comparable trading
multiples and consider why the target company may be trading at a discount
or premium to its comparable peers; Gain a broader understanding of the
leveraged buyout (LBO) process and consider its advantages and
disadvantages. Cover importance of financial analysis and the impact of
leverage, credit ratings, maximizing shareholder value, economic factors
and dividend policy Discuss who the stakeholders were in the proposed
leveraged buyout (LBO), what interests these stakeholders had, which
stakeholders should the board consider in carrying out its duties and,
ultimately, what the basic objectives of the corporation are. .


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Acquisition currency highlights some of the issues facing acquirers in
deciding how to structure a proposed transaction. An acquirer able to offer
cash would, if opting to use stock as acquisition currency instead, probably
use a "fixed value" measure, with an exchange ratio that floats and an
acquisition price that stays the same.
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Describes how DaimlerChrysler actually organized and moved to
implement the post-merger integration process, raising a set of issues
around structural risks, cultural aspects, and execution skills in a high-
stakes, global context of a major post-merger integration effort.


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This session examines due diligence, the legal agreement, corporate
acquisitions, merger transactions, tender offers and proxy contests.
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In 2004, Google announced that it was launching its long-awaited IPO. This
case examines the unconventional auction format of the IPO of the world's
most popular search engine, the role of investment banks in the IPO process,
and the implications for corporate governance and stock valuation of a dual-
class share structure.


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Case examines a number of issues related to Kmart's bankruptcy,
restructuring, and rebirth under the control of ESL, a large hedge fund. The
case focuses on the role of investment bankers and the increasingly important
position that hedge funds and LBO funds have carved out in the M&A market
Two deals are covered: the first deal illustrates the decision-making process
for a financial buyer, including the downside protection of Kmart's real estate
holdings; the second deal represents a traditional strategic acquisition. This
case also illustrates the innovative use of real estate as a "hedge" in the event
that the retail combination does not produce the required results.


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Case examines issues of asset control for Ben & Jerry's Homemade, Inc.,
during the takeover offers by Chartwell Investments, Dreyer's Grand,
Unilever, and Meadowbrook Lane Capital in January 2000. Case provides
a unique opportunity to discuss the implications of a nontraditional
corporate orientation and review Ben & Jerry's strong social consciousness
and the takeover-defense mechanisms that maintain management's control
on company assets.


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Credit risk analysis is one of the most important factors in determining what
sources of capital are available to a company. This section covers when and
why credit analysis is applied and discusses: rating agencies, credit ratings,
methods of credit analysis and credit ratio notching.
Sources of Capital examines short term, senior long-term and subordinated
debt; common and preferred equity; public vs. private capital and private
placements
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Case describes Texas Pacific Group’s (TPG) purchase and operation of J.
Crew, the catalog and specialty clothing retailer and highlights the issues
involved in financing the transaction and operational challenges of turning
around and running the business. Case also details the improvements in the
business and then the retrenchment, leaving the business facing a significant
debt payment coming due. TPG must decide whether to sell the business and
get out “whole,” or develop and execute a successful strategy going forward.



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Corporate social responsibility looks at how firms treat their stakeholders. All
too often, the corporate social responsibility literature focuses on customers,
employees, and the natural environment, but rarely on shareholders. The
focus of this article is the impact of the firm on its shareholders as expressed
through its corporate governance practices.
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Case enables a full discussion of the pressures that led executives and
managers to “cook the books,” the boundary between earnings smoothing
and fraudulent reporting, the role for internal control systems and internal
audits to detect and prevent accounting fraud, the expectations about
governance processes performed by external auditors and the board of
directors, and the pressures and consequences when middle managers
follow orders they know are wrong.

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In a team environment and students will participate in a mock negotiation session. Roles will be
assigned and a format shall be distributed in advance describing the framework of negotiations.
Learning objective:
To provide an opportunity to explore the factors influencing the market for corporate control and the
boardroom dynamics of hostile takeovers. At issue is whether Cyanamid's board will endorse AHP's
hostile offer even though management does not support the offer and instead supports a lower-valued
friendly asset swap with SmithKline Beecham.
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