The document provides case questions related to several investment banking cases. The questions cover topics such as the deregulation of the investment banking industry in the late 1990s and the 2008 financial crisis, the collapse of Bear Stearns and Lehman Brothers, compensation structures on Wall Street, and major mergers and acquisitions involving Freeport-McMoRan, Procter & Gamble/Gillette, H.J. Heinz, and Sears/Kmart. Students are instructed to answer one set of case questions in 1-1.5 pages before class discussion.
The document provides case questions related to several investment banking cases. The questions cover topics such as the deregulation of the investment banking industry in the late 1990s and the 2008 financial crisis, the collapse of Bear Stearns and Lehman Brothers, compensation structures on Wall Street, and major mergers and acquisitions involving Freeport-McMoRan, Procter & Gamble/Gillette, H.J. Heinz, and Sears/Kmart. Students are instructed to answer one set of case questions in 1-1.5 pages before class discussion.
The document provides case questions related to several investment banking cases. The questions cover topics such as the deregulation of the investment banking industry in the late 1990s and the 2008 financial crisis, the collapse of Bear Stearns and Lehman Brothers, compensation structures on Wall Street, and major mergers and acquisitions involving Freeport-McMoRan, Procter & Gamble/Gillette, H.J. Heinz, and Sears/Kmart. Students are instructed to answer one set of case questions in 1-1.5 pages before class discussion.
The document provides case questions related to several investment banking cases. The questions cover topics such as the deregulation of the investment banking industry in the late 1990s and the 2008 financial crisis, the collapse of Bear Stearns and Lehman Brothers, compensation structures on Wall Street, and major mergers and acquisitions involving Freeport-McMoRan, Procter & Gamble/Gillette, H.J. Heinz, and Sears/Kmart. Students are instructed to answer one set of case questions in 1-1.5 pages before class discussion.
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Case Questions
Questions are provided to help facilitate understanding of
the case. A one page (maximum 1.5 page, if necessary) response to each set of case questions must be posted in Blackboard prior to the class in which the case will be discussed (see Syllabus). Questions should be answered on an individual basis, without discussion with other students.
Investment Banking in 2008 (B): A Brave New World
1. Why were proponents of deregulation so successful in the late 1990s? How much can we blame deregulation for the meltdown in the investment banking industry, and how could the government have foreseen and/or stopped the domino effect before the crisis of 2008? 2. Could any one of the investment banks have remained competitive without following the industry trend of taking on increasing amounts of leverage to boost returns on investment? If so, how? 3. Why was Lehman Brothers allowed to collapse while Bear Stearns was not? 4. Did the compensation structure of the investment banking industry encourage banking executives and employees to take on excessive risk to boost short-term profits? Why or why not? 5. How much of the industry-wide crisis stemmed from the investment banks financials and the current economic climate as opposed to investor panic and speculation? 6. Both Bear and Lehman bailed out their proprietary hedge funds. Did they have any other option? What would have happened had they not done so? 7. Could Morgan Stanley and Goldman Sachs have survived without becoming bank holding
companies? What were the benefits and disadvantages of becoming bank holding companies? What does designation as bank holding companies mean for the way Morgan and Goldman operate going forward?
Freeport-McMoRan: Financing an Acquisition
1. Why do you think JPMorgan and Merrill Lynch were selected to underwrite and book-run all $23.3 billion in financings (all debt, common stock, and convertible), instead of sharing the underwriting with additional firms? 2. What was the role of the leveraged finance group at JPMorgan and why was its involvement important to the acquisition? 3. Describe the forms of risk that an investment bank must consider in relation to acquisition and underwriting transactions. Describe what it means for a firm to set aside capital when it completes underwriting transactions. 4. Describe the role and importance of credit rating agencies in the FreeportMcMoRan transaction. Which group within an investment bank has the primary responsibility to work with companies regarding rating agency considerations? 5. Describe the role of equity research at JPMorgan in the transaction. How has the role of equity research changed since 2003? 6. Who are the clients of the institutional sales team at JPMorgan? What is meant by a limit order, and what is its impact on the sales function? Describe the role of an Equity Capital Markets Syndicate group. 7. Assume the following fees were paid: M&A fee of 0.5 percent of the transaction value; debt fees of 0.75 percent on all debt and loan financing; equity fees of 3 percent on all equity and convertible financing. Calculate the estimated total fees for both JPMorgan and Merrill Lynch. Indicate whether you think these fees were justified and support your views.
The Best Deal Gillette Could Get?: Proctor & Gambles Acquisition of Gillette 1.What were the possible synergies and forces propelling the merger between P&G and Gilletteas well as the history of other takeover attempts for Gillette? 2. In light of Gillettes large increase in value during James Kiltss tenure, was his compensation reasonable? Was his pay package in the best interest of shareholders? 3. Evaluate the P&G offer. Make a list of the positive and negative aspects of receiving shares or cash from both the perspective of P&G and Gillette shareholders. 4. Compare the valuation analyses in Case Exhibits 6 and 7 (Edition 1 of textbook), or Figures C4.4 and C4.5 (Edition 2 of textbook). Why are they different? Support and defend the validity of using each valuation method. 5. Discuss the conflicts of interest for the investment bank in an M&A transaction where the same firm that writes the fairness opinion in support of the deal stands to be paid a large fee if the transaction is completed. 6. Should investment bankers and companies spend their time appeasing politicians worried about the effects of possible mergers? Are politicians representing the interests of the American public when they question the merits of a deal? Also evaluate the role played by federal and international regulators. Is there any better solution to the complicated regulatory process? 7. Evaluate the role played by Warren Buffett in the merger. Should the support of one investor be a deciding factor in the completion of an M&A transaction?
H.J. Heinz M&A
1. Describe the activities of Nelson Peltz and the role played in laying the groundwork for the acquisition by Berkshire Hathaway and 3G. 2. Discuss the positions of various stakeholders, including Heinz shareholders, management, employees, and citizens of Pittsburg. 3. Discuss the go-shop process, why it may be necessary, and risks associated with this process. 4. Why were so many investment bankers involved in this transaction, and what were their respective roles? 5. What was the acquisition premium? Was this reasonable? 6. Why did this transaction propose zero synergies? Discuss and quantify potential synergies that could be realized, including where they come from, the period of time over which they can be realized, and quantify the impact on enterprise valuation.
7. What was the market reaction to the acquisition announcement, including share price and equity analyst commentary?
Kmart, Sears and ESL: How a Hedge Fund Became one of the Worlds Largest Retailers 1. Describe recent trends in the hedge fund and private equity industry and the growing overlap between the two. 2. Analyze different issues surrounding a purchase by a financial or strategic buyer and their respective strengths and weaknesses. 3. Provide a brief historical background of the problems facing Kmart and the characteristics of the distressed debt market, including factors that influence an investment in a distressed company. 4. Compare Kmarts financials before and after bankruptcy (see Case Exhibit 6). 5. Discuss the causal events facilitating the acquisition of Sears. Could Sears have succeeded as a standalone retailer? 6. Evaluate Lamperts strategy and the benefits for Searss shareholders.
Foundational Theories and Techniques for Risk Management, A Guide for Professional Risk Managers in Financial Services - Part II - Financial Instruments
