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Advanced Corporate Finance I

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					Advanced Corporate Finance I


Lecturer:      Michel Habib, Institut für schweizerisches Bankwesen, Universität Zürich



Description

The course uses the tools learnt in earlier courses to study a variety of financial instruments
(e.g., stocks, bonds) and applies those tools to a range of problems in corporate finance
(e.g., the measurement of value created, mergers, capital structure, financial distress,
project finance and bond issuance). Many problems are studied in the context of real cases.

Topics covered

•       Review of valuation
•       Measuring value created: Manufacturers Hanover
•       A merger in the banking industry: Chase Manhattan
•       Corporate governance in family firms: New York Times
•       Review of capital structure
•       Choosing a capital structure: Diageo
•       Zero sum games in financial distress: Marvel Entertainment Group
•       Financing
•       Financing and financial distress in the shipping industry: Navigator
•       Project finance in Venezuela and bond issuance in New York: Petrozuata
•       Bonds

Textbook and notes

Books that may prove useful are Principles of Corporate Finance, by R. Brealey, S. Myers
and F. Allen, Corporate Finance: Grundlagen von Finanzierung und Investition, by R. Volkart
and Business Analysis and Valuation, by K. Palepu, V. Bernard and P. Healy.

Some notes have been posted on the course website. Please print them and bring them to
class on the relevant days.

Assessment

Assessment is based on four cases: the write-up of three cases and the preparation,
presentation and write-up of an actual problem/project/transaction, such as Richemont’s
spin-off of its stake in BAT, Roche’s acquisition of Genentech or Nestle’s sale of Alcon. The
write-up of each of the first three cases is to be handed in on the day the case is discussed.
The write-up of the fourth case is to be handed in on 20 December. The work on the first
three cases may be done individually, but group work is encouraged. The work on the fourth
case is to be done in group. A group can be as small as two persons, but groups of four to
five persons are preferred. Each of the first three cases accounts for 15% of the course
grade. The fourth case accounts for the remaining 55%. The write-up of each of the first
three cases need be no longer than 4-5 pages. The write-up of the fourth case may be up to
20 pages long. Grades will be adjusted for attendance, for class participation and for
performance on possible in-class mini-quizzes.
If you wish to contact me

I encourage you to contact me (habib@isb.uzh.ch) if you are having difficulty understanding
the material.       You should contact the teaching assistants, Lorenzo Brandi
(brandi@isb.uzh.ch) and Evgeny Plaksen (plaksen@isb.uzh.ch) for any question regarding
the grading of the cases.

Preparation for the first lecture

There is no preparation for the first lecture, which is a review of valuation.

Schedule

15 September: Overview/Review of Valuation

22 September: Manufacturers Hanover

29 September: Chase Manhattan
Hand in write-up

6 October: New York Times

13 October: Review of Capital Structure

20 October: Diageo
Hand in write-up

27 October: Marvel Entertainment Group

3 November: Financing

10 November: Navigator

17 November: Petrozuata
Hand in write-up

24 November: Dr Andreas Schreiner, McKinsey

1 December: Class presentations

8 December: Class presentations

15 December: Class presentations

20 December
Hand in write-up
Questions for cases

Manufacturers Hanover

Discuss the LPM. What does it measure and what are its limitations?

Discuss the pros and cons of double counting and fee splitting.

Chase Manhattan

Evaluate the rationale for the merger.

Discuss the relative merits of a merger and an acquisition.

Compute the present value of the gains from the merger. What cost of capital should you
use?

Suggest an exchange ratio for the shares.

New York Times

Comment on the behaviour of MSIM, Private Capital Management, T. Rowe Price, Fidelity
and Vanguard.

What should Arthur Sulzberger Junior do?

Diageo

Compare the results of the Monte Carlo simulation with Diageo’s stated capital structure
policy. Should Diageo increase gearing? Why or why not?

Evaluate the decisions to sell Pillsbury and list Burger King. What impact might these
divestures have on the volatility of cash flows and the probability of financial distress?

Marvel Entertainment Group

What does the decline in MEG’s share price from $4.625 to $2.75 and then to $2 reflect?

What must Mr. Perelman believe is the minimum value of the restructured MEG?

What do you think of Bear Stearns’s estimate of the going-concern value of MEG without the
Toy Biz acquisition?

What should the debtholders of MEG do? What about the holders of the bonds issued by
the holding companies?

Navigator

Discuss Navigator’s initial capital structure.

Should the creditors restructure or liquidate? How do these options compare with Vela’s
proposal?
Petrozuata

Value the project using the APV. Should the project be undertaken?

Why use project finance?

Identify the risks involved. Discuss the extent to which they can be controlled. Identify the
parties to whom they should be allocated.

Why use bond financing?

Can Petrozuata convince the rating agencies to rate its bonds more highly than those of the
Government of Venezuela?

				
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Description: Corporate finance refers to financial intermediation enterprises as the mainstay, the links between enterprises and their internal funds from the imbalance of supply and demand to balance the movement. When a shortage of funds, the cost of raising the minimum to the appropriate period of time, the appropriate amount of funds; when the capital surplus, the lowest risk, the appropriate time running out to get the maximum benefit, in order to achieve balance between supply and demand of funds.