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Case Studies by Theo Vermaelen

10 case studies

by Publication Date
published: 02 May 2019

  • Topic: Economics & Finance
  • Region: Europe

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Abstract:
The case covers events leading to the hostile bid for AkzoNobel by PPG in 2017, the market response that it prompted, and AkzoNobel’s takeover defenses including the divestment of a business area and large cash payout. Various scenarios (as a standalone, after divestiture and after a takeover with synergies) are considered for the valuation of AkzoNobel, as is the rationale behind the various takeover bids by PPG. The role of activists in triggering the takeover process is highlighted. Alternative payout mechanisms (capital repayment, dividend payment, share buyback) are discussed.

Pedagogical Objectives:
Students learn how to value companies under different scenarios (as a standalone, after a divestiture and after a takeover with synergies) and to interpret market responses to various corporate actions. The case illustrates various takeover defenses, the role of activists, and the dilemma of making a hostile bid in countries where “maximizing stakeholder value” is the cornerstone of governance. It provides the opportunity to discuss different payout mechanisms: dividends vs share buyback, and the less common “capital repayment”.

Keywords:
Takeovers, Hostile Bids, Takeover Defenses, Company Valuation, Activists, Payout Policy, Stakeholder Value Versus Shareholder Value, Akzonobel, Ppg

published: 26 May 2015

  • Topic: Economics & Finance
  • Industry: Female Condoms; Health Care
  • Region: Other Regions

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Abstract:
Female Health Company produces the female condom which is distributed by non-profit organisations in Africa to prevent HIV/AIDS. In February 2009 the company has to decide whether to buy back stock. This provides an opportunity to check whether the firm is fairly valued and whether it should reconsider its capital structure and payout policy.

Pedagogical Objectives:
The main purpose is to teach company valuation in a framework where a firm's target capital structure is changing over time because of changes in the corporate tax rate. At the same time it provides an opportunity to discuss capital structure as well as payout policy (dividends vs. various types of share buybacks). It also provides an illustration of how "doing good" can be very profitable. The case may be useful to representatives of NGOs who want to better understand the point of view of the manufacturers of the product.

Keywords:
Valuation, Financing, Payout Policy, Socially Responsible Business, Corporate Governance, Auditing, Risk Control and Performance

published: 31 Jan 2009

  • Topic: Economics & Finance
  • Industry: Steel
  • Region: Europe

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Abstract:
Arcelor believes its shares are undervalued and has to decide whether to buy back stock via a repurchase tender offer or via an open market repurchase. Before doing so, it has to value the company to get an estimate of the fair value of the company. It has also to decide whether it can afford the buyback: is the increase in leverage a move to a better capital structure?

Pedagogical Objectives:
The purpose of the case is to make students familiar with buyback methods and with the dilemma that a firm faces when choosing between a tender offer and an open market repurchase: buying in the open market is cheaper, but a tender offer will increase stock prices more in the short run, which may be important if the firm wants to get a better price in a hostile takeover bid. The case asks students to value Arcelor as well as analyse the implications for optimal capital structure.

Keywords:
Share Buyback, Repurchase Tender Offer, Open Market Repurchase, Signaling, Company Valuation, Optimal Capital Structure

published: 31 Jan 2009

  • Topic: Economics & Finance
  • Industry: Private Banking
  • Region: Europe

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Abstract:
The case describes the valuation of various types of customers in private banking and the relationship between the value drivers. It also tries to quantify synergies between asset management and corporate finance and private banking.

Pedagogical Objectives:
Illustrates DCF valuation methodology in an uncommon setting : the value of a customer in private banking. Illustrates the difference between profit maximization and value maximization. Compares the very different economics of deal making in corporate finance and asset management in private banking, as well as synergies between various banking divisions.

Keywords:
Private Banking, Customer Value, Banking Synergies, Management Buyouts

Related:

published: 30 Jan 2009

  • Topic: Economics & Finance
  • Industry: Steel
  • Region: Europe

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Abstract:
The case describes the hostile bid of Mittal for Arcelor in the first half of 2006. It documents stock price behaviour around the crucial events surrounding the acquisition. It also provides estimates of synergy benefits as well as a spreadsheet that allows students to calculate directly the implications of synergies for shareholder value.

Pedagogical Objectives:
The goal of the case is to illustrate the different defence mechanisms firms can employ in hostile bid situations. Students are expected to explain why the market reacts in a particular way to the various takeover defences. The case allows calculation of synergy benefits as estimated by Mittal as well as market estimates by measuring announcement returns. It also enters into a discussion of optimal acquisition finance.

Keywords:
Mergers and Acquisitions, Hostile Bids, Takeover Defenses, Valuation of Synergies, Acquisition Finance, Corporate Governance, Investors, Stakeholders and Accountability

published: 29 Oct 2007

  • Topic: Economics & Finance
  • Industry: Banking
  • Region: Global

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Abstract:
The case describes the launching of the KBC buyback fund, a mutual fund that aims to exploit the buyback anomaly first documented by Ikenberry, Lakonishok and Vermaelen(1995). It summarizes the empirical results of the study which show positive long-term excess returns after open market buyback programmes. The case deals with the practical problems of setting up such an event-driven fund: marketing, separating firms that repurchase stocks for good reason from those that do so for other reasons, and how to diversify across event time.

Pedagogical Objectives:
Teach students about buyback anomalies and event-driven strategies.

Keywords:
Share Buybacks, Anomalies, Asset Management

published: 15 Apr 2002

  • Topic: Economics & Finance
  • Industry: Technology-Internet
  • Region: North America

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Abstract:
This case discusses the potential benefits and costs of issuing floating-priced convertibles, also referred to as "death spirals". These are convertibles where the conversion price is a discount from the market price in a look-back period. The management of Log on America is blaming investment banks and convertible investors for the stock price collapse after the convertible was issued.

Pedagogical Objectives:
Comparing costs and benefits of floating priced convertibles with other methods of financing such as debt, equity and convertibles with a fixed conversion price. Acting as an "expert witness" in the lawsuit between LOA and CSFB: what is the cause of the stock price decline? Valuing floating-priced convertibles under different assumptions about contract design.

Keywords:
Floating Priced Convertible, Death Spiral Convertible, Capital Structure, Pipe, Option Pricing, Financial Innovation

published: 30 Jun 1995

  • Topic: Economics & Finance
  • Industry: Water Distribution; Construction
  • Region: Europe

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Abstract:
his case describes the acquisition of Dumez by Lyonnaise des Eaux in 1990. The case is written from the point of view of Suez, a French holding company that is also the most important shareholder of Lyonnaise. As a holding company it is supposed to verify that Lyonnaise does not pay too much for Dumez and that the acquisition makes sense.

Pedagogical Objectives:
he case is used to illustrate the Discounted Cash Flow method in valuing acquisition targets. It highlights the difference between value creation and earnings/sales maximisation by showing how maximising earnings per share and maximising sales are incompatible with value creation.

Keywords:
Mergers, Acquisitions, Valuation, Synergy

Prizes won:
- Winner of 1998 European Case Awards, Finance Category

Bank Waal en IJssel Award winner Prize Winner
published: 01 Sep 1994

  • Topic: Economics & Finance
  • Industry: Investment banking
  • Region: Europe

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Abstract:
The director of the Corporate Finance division of Bank Waal en IJssel (WIJ), the Dutch subsidiary of an international banking conglomerate, was interested in identifying synergies between the bank's financing and advisory activities. He felt that a willingness to participate in transactions as an investor was increasingly important to winning advisory mandates and could help the bank expand its corporate finance activities in non-traditional areas such as structured finance, which currently contributed less than 5% of revenues.

Pedagogical Objectives:
To illustrate value based strategy in an investment bank To allow discussion on the value of potential synergies between different business units To illustrate how an investment bank can look at its own businesses, employing the same techniques (DCF) as its Corporate Finance division normally does to analyse its customers

Prizes won:
- Winner 1996 EFMD European Case Writing Competition, Financial Management

Related:

published: 01 Jan 1994

  • Topic: Economics & Finance

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Abstract:
The case illustrates the consequences of the first share repurchase tender offer in the UK. What makes the case rather unique is that "financial innovation" is being dealt with here and that management behaved very differently from typical behaviour in the US: they massively tendered their own shares. The repurchase is evaluated from the standpoint of the corporation and from the standpoint of the investor ("Ted Miller") who has to decide whether, in spite of the managerial tendering behaviour, he should hold on to the stock.

Pedagogical Objectives:
The case invites students to explain the price behaviour around repurchase tender offers and discusses the motivations for the buyback.

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