FBE 432

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FBE 432 – “CORPORATE FINANCIAL STRATEGY”

Syllabus – Spring 2013 – Tuesdays, Thursdays, 2:00- 3:50pm,

JKP 110Professor: J. Kimball Dietrich

Office: ACC 301GOffice Phone: 213-740-6539

E-mail: [email protected]

Office Hours: Tuesdays, Thursdays 4:00-5:30pm, or TBA

COURSE OBJECTIVES

The primary objective of “Corporate Financial Strategy” is for students to understand the

decisions facing a corporate chief financial officer (CFO) and his or her staff, to appreciate the

implications of financial theory in real situations (cases), and to be able to analyze and communicatethe implications of their analyses to an informed audience. A second objective is for students to

appreciate the demands and opportunities of pursuing careers in different functions of finance, such

as investment banking, commercial bank lending, or providing other financial services to corporate

financial management.This is a case-based course and will make extensive use of both Harvard Business School

cases and two Harvard notes related to case discussions. The course outline is organized around

examples of major corporate financial decisions, emphasizing the roles played by financial

professionals in different financial decision-making areas. A major objective of the class is for

students to refine and expand specific skills and use of financial analytical tools in a real-world

context and be able to think critically and defend or objectively criticize their analyses or those of

other students.

At the conclusion of FBE 432, students will be able to:

• Value companies;

• Link capital structure to valuation;

• Analyze motivations for mergers and acquisitions;

• Appreciate the significance of ownership structure on value and performance;

• Relate business and financial strategies;

• Assess strategic factors affecting corporate investment;

• Compare alternative sources of financing;

• Use derivatives (e.g. futures, options, and swaps and others) to manage risk;

• Integrate shareholder wealth creation in formulating corporate decisions.

PREREQUISITES

The basic requirements for “Corporate Financial Strategy” are the required undergraduate

business core courses. It is assumed that students are thoroughly familiar with the contents of

BUAD 306 and its assigned text readings. Suggested review readings in the basic finance text are provided for students to assure their understanding of essential finance concepts. Other advancedcourses in finance may be useful but are not required as preparation for FBE 432.

REQUIRED AND RECOMMENDED READINGS

A “Course Reader “for this section of “FBE 432 “Corporate Financial Strategy” is available

at the USC bookstore and is required. It is available in hard copy or downloadable form. In

addition, other readings will be posted on Blackboard or available on the web. Recommended

background readings for class discussion and case preparation are provided in the course schedule

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and the “Recommended Chapters for Review” table below. Recommended readings are based on

the undergraduate-level finance text, Fundamentals of Corporate Finance, by Ross, Westerfield, and

Jordan, 10th edition ( RWJ ), used in many Marshall School required core finance classes. Students

may review subjects in corresponding chapters of texts basic finance texts if they choose. The table

relating RWJ to topics discussed in this course includes chapter titles that should be similar to thosein other standard texts. I will provide guidance if necessary.

Students are also expected to follow business developments reported in the business press,especially the Wall Street Journal , and it is highly recommended that students also read other

periodicals, especially The Economist and Fortune magazines.

COURSE ORGANIZATION

Case discussions are scheduled to illustrate basic financial problems and different aspects of

the finance function in firms. Lectures and recommended textbook or other background readings

covering important issues raised in each case will precede the case discussion for the following class.

Students in the class will be formed into groups of three or four students after enrollment has

stabilized to work outside of class to discuss, analyze, and write-up assigned cases as discussed

below. All students must be prepared to answer questions and discuss issues (often on a cold-call

basis) raised by these cases during the class discussion or as part of the written examinations

discussed below. I will distribute a list of questions for each case to provoke thinking but thesequestions are not to be taken literally or as guides to case solutions: the case analysis should be a

coherent assessment of these and other issues.

Case analysis is time consuming and several readings of the case will be necessary.

Students should allow plenty of time to survey the case contents, digest case facts, and analyzeissues raised. You may not be able to identify a single theme or issue: cases may involve marketing

and accounting and other business disciplines as well as financial issues. Students should focus only

on the financial implications of business problems described in the case. There is no right answer to

a case and none will be distributed. Analyses and discussion must be clearly related to the finance

issues in the case.

All written case analyses must include a cover sheet giving the case name and listing the

group members (alphabetically by last name) for the group write-ups described below. There are

two types of case write-ups to be handed in by groups according to assignments on a sign-upschedule completed in the second week of class:

(1) Each week three groups will be assigned as “Case Presenters” to discuss and debate their

case analyses and recommendations for the class as outlined in a “Case Presentation

Memorandum”;

(2) “Case Issue Summaries” are required from each group not presenting cases that week.

For the case discussions, the three groups assigned primary responsibility for presenting thaweek’s case will present their analysis in the form of a “Case Presentation Memorandum” written for

key decision-makers assuming that the audience is financially sophisticated and will contain exhibits

used in presenting their analysis to the class. Students should stick to the finance issues raised by the

case, i.e. do not review a corporation’s business or history. “Case Presentation Memorandum” willconsist of analysis and recommendations limited to one to one-and-half pages (typewritten and

double spaced) in length. The presenting groups should be ready to both lead the class casediscussion and analyze and explain differences in their group’s positions. An exhibit appendix may

contain several pages of graphs, spreadsheets, or data, that also may be used as PowerPoint

presentations to the class. Presentations are expected to make the case analysis clear to the class.

“Case Issue Summaries” (for non-group presenters) should be one page in length and can be

outlines or bullet points on major issues raised in the case, description of the important relevant data

and a brief outline of appropriate analysis in making a decision, a summary of key assumptions and

their implications for decisions, and a brief description of recommendations for decision makers.

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No credit will be granted for a case write-up for either a “Case Presentation Memorandum”

or an “Case Issue Summary” handed in after the beginning of the class discussion of the case.

Students should retain a copy of their write-ups for reference during the class discussion.

ELECTRONIC RESOURCES

FBE 432 has a course website available through Blackboard (course 15411). I will

distribute course materials (overhead transparencies and weekly course objectives together withvocabulary lists and recommended current newspaper or periodical readings) through the website,

usually available by Monday morning of the week’s class. Excel files containing the most important

data from the cases will also be posted on the website. It also contains links to useful financial

information and data sources available on the Internet.

.

STUDENT DISABILITIES

Any student requesting academic accommodations based on a disability is required to

register with Disability Services and Programs (DSP) each semester. A letter of verification for

approved accommodations can be obtained from DSP. Please be sure the letter is delivered to me as

early in the semester as possible. DSP is located in STU 301 and is open 8:30 a.m. - 5:00 p.m.,

Monday through Friday. The phone number for DSP is (213) 740-0776.

ACADEMIC INTEGRITY

USC seeks to maintain an optimal learning environment. General principles of academic

honesty include the concept of respect for the intellectual property of others, the expectation that

individual work will be submitted unless otherwise allowed by an instructor, and the obligations both to protect one’s own academic work from misuse by others as well as to avoid using another’s

work as one’s own. All students are expected to understand and abide by these principles. SCampus,

the Student Guidebook, (www.usc.edu/scampus or http://scampus.usc.edu) contains the University

Student Conduct Code (see University Governance, Section 11.00), while the recommended

sanctions are located in Appendix A.

Students will be referred to the Office of Student Judicial Affairs and Community Standards

for further review, should there be any suspicion of academic dishonesty. The Review process can

be found at: http://www.usc.edu/student-affairs/SJACS/ . Failure to adhere to the academic conductstandards set forth by these guidelines and our programs will not be tolerated by the USC Marshall

community and can lead to dismissal.

COURSE GRADING

There will be a midterm and a final examination: the midterm counts once and the final

twice, and I will drop the worst of the three scores (e.g. if the midterm is 50 and the final 90, thestudent receives 90, whereas if the midterm is 90 and the final 50, the student receives 70 as an

average for the two exams.) Course grading will be based on the following weights:

Class Participation* 10%

Groups Case Analyses 45%Three “Case Presenter” memoranda 30%

“Case Issue Summaries” 15%Midterm and final exams 45%

TOTAL 100%

*Two classes can be missed without penalty if assigned work is submitted prior to the beginning of

class. A session grade will to students after each class on a 4-point scale: 1 = present but unprepared,

2 = read case and had partial understanding of issues, 3 = understood case issues, 4 = contributed to

class understanding of case issues. There is no reward for talking at length or repeating my

comments. The group case write-ups and presentations will be graded on completeness, clarity, and

persuasiveness of the written presentation.

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FBE 432 – CORPORATE FINANCIAL STRATEGY -- COURSE SCHEDULE -- 2013

Dates Week’s Lecture Topic Week’s Case Discussion Text Review*

Week 1

January 15-17 I. INTRODUCTION AND PRACTICE CASE OVERVIEW

Corporate finance and case analysis: Introduction to practice case Ch. 15

Week 2

January 22-24

Case 1: The Union Carbide Deal (Abridged) (HBS 9-897-201)

II. THE INVESTMENT DECISION: PRESENT VALUES Ch. 16

Week 3

January 29-31

Case 2: Sampa Video (HBS 9-201-084)*

II. THE INVESTMENT DECISION: COST OF CAPITAL Ch. 14

Week 4

February 5-7

Case 3: Marriott Corporation (Abridged) (9-289-047)*

II. THE INVESTMENT DECISION: PROJECT ANALYSIS Ch. 11

Week 5

February 12-14

Case 4: Airbus A3XX: Developing the World’s Largest Commercial Jet (A)

(HBS 9-210-028)*

II. THE INVESTMENT DECISION: OPTIONS & DECISION TREES 13§1, 24§6,

and Reading 1

Week 6

February 19-21

Case 5: Merck and Co: Evaluating a Drug Licensing Opportunity

(HBS 9-201-023)*II. THE INVESTMENT DECISION: VALUATION Ch. 8

Week 7

February 26-28

Case 6: Valuation of AirThread Connections (HBS 4263)*

II. THE INVESTMENT DECISION: MERGERS Ch. 26

Week 8

March 5-7

Review of Analysis and Case Discussions

Midterm Examination

Week 9

March 12-14

Case 7: Roche’s AcquisItion of Genentech (9-210-040)*

III. THE FINANCING DECISION: FINANCING GROWTH Chs.7§6 and 27

Week 10

March 26-28

Case 8: Financing PPL Corporation’s Growth Strategy (HBS 9-

202-045)*

III. THE FINANCING DECISION: RISK MANAGEMENT Ch. 23 and

Reading 2

Week 11 April 2-4

Case 9: Liability Management at General Motors (9-293-123)IV. WORKING CAPITAL: MANAGEMENT Chs. 18 and 20

Week 12

April 9-11

Case 10: Dell Working Capital (HBS 9-201-029)*

IV. WORKING CAPITAL: CASH DISTRIBUTIONS Ch. 17

Week13

April 16-18

Case 11: Avon Products (HBS 9-289-049)*

V. GOVERNANCE: BOARD RESPONSIBILITIES Ch. 1 Reading:

Stern-Stewart

Week 14

April 23-25

Case 12: Circon (A) (HBS 9-801-403)*

V. GOVERNANCE: COMPENSATION ISSUES Ch. 1§4

Week 15

April 30-May 2

Case 13 Vyaderm Pharmaceuticals (HBS 9-101-019

COURSE SUMMARY AND FINAL REVIEW

FINAL

May 9

Final Examination 2:00-4:00pm

*References are to Ross, Westerfield, and Jordan text. See table below for more detail.FBE 432 – CORPORATE FINANCIAL STRATEGY – CASES AND READINGS -- 2013

I. INTRODUCTION AND PRACTICE CASE Date DiscussedCase 1 The Union Carbide Deal (Abridged), (HBS 9-897-201) January 22

II. THE INVESTMENT DECISION

Case 2 Sampa Video (HBS 9-201-084) January 29

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Case 3 Marriott Corporation (Abridged) (9-289-047) February 5Case 4 Airbus A3XX: Developing the World’s Largest Commercial Jet (A)

(HBS 9-210 028)February 12

Reading 1 HBR Article: Dixit and Pyndyck, “The Options Approach to Capital

Investment”February 14

Case 5 Merck and Co: Evaluating a Drug Licensing Opportunity (HBS 9-201-

023)February 19

Case 6 Valuation of AirThread Connections (HBS 4263) February 26Case 7 Roche’s AcquisItion of Genentech (9-210-040) March 12

III. THE FINANCING DECISION AND RISK MANAGEMENT

Case 8 Financing PPL Corporation’s Growth Strategy (HBS 9-202-045) March 26Reading 2 HBS Note: “Interest Rate Derivatives” (9-294-095) March 28Case 9 Liability Management at General Motors (9-293-123) April 2

IV. WORKING CAPITAL: MANAGEMENT AND CASH DISTRIBUTIONS

Case 10 Dell Working Capital (HBS 9-201-029) April 9Case 11 Avon Products (HBS 9-289-049) April 16

V. GOVERNANCE AND COMPENSATION ISSUES

Case 12 Circon (A) (HBS 9-801-403) April 23Case 13 Vyaderm Pharmaceuticals (HBS 9-101-019) April 30

Recommended Chapter Titles to Review for Topics Discussed RWJ**

“Raising Capital” 15“Financial Leverage and Capital Structure Policy” 16

“Cost of Capital” 14

“Project Analysis and Evaluation 11

“Return, Risk, and the Security Market Line: Expected Returns and Variances” 13§1

“Options and Corporate Finance: Options and Capital Budgeting” 24§6

“Stock Valuation” 8“Mergers and Acquisitions” 26

“Interest Rates and Bond Valuation: More About Bond Features” 7§6

“Leasing” 27

“Enterprise Risk Management” 23

“Short-Term Finance and Planning” 18

“Credit and Inventory Management” 20

“Dividends and Payout Policy” 17

“Overview of Corporate Finance” 1** Chapter references are to Ross, Westerfield, and Jordan , Fundamentals of Corporate Finance,

10th Edition, Alternate Edition, McGraw-Hill Irwin ©2013. Other basic finance texts should have

corresponding chapters.

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FBE 432