COURSE SYLLABUS
Case Western Reserve University
Weatherhead School of Management
BAFI 460 – Investment Banking
Fall Semester - 2001
Instructor:
Lynn-Ann Gries
Phone:
Office phone: (216) 368-3778
Cell phone: (216) 978-2647 (has voicemail)
Home phone: (216) 921-5768
E-Mail: LXG39@weatherhead.cwru.edu
CWRU office: Enterprise 407
Class Time: Thursday evenings 8:15 p.m. – 10:15 p.m. Sears Room 356.
Text:
Reading packet, cases and books available at the bookstore.
Additional reading material to be handed out as needed.
Daily reading of the Wall Street Journal is highly recommended.
Computer:
You will need a laptop that you can use in class.
Course Overview
This in an introductory class about Investment Banking. We will discuss what
role investment banks play in the business world, how an investment bank is
structured, and how investment bankers provide services to their clients. In
addition we will focus on the various types of capital markets products offered by
investment banks, namely equity (IPO’s secondary offerings, preferred stock
etc.) and debt (investment grade debt, high yield debt, mezzanine debt). A
significant portion of time will be spent understanding the process a company
must go through to raise public equity capital. We will not spend much time on
mergers and acquisitions since Bill Mahnic’s class (BAFI 450) covers that topic in
detail.
In addition to discussing capital markets products (equity and debt) we will
discuss the various functions needed to support these products, namely research
(equity and high yield), institutional sales, trading and syndicate. We will also
discuss the market for private equity capital (venture capital, LBO funds,
mezzanine funds etc.) and how these firms impact what occurs in the public
markets.
IMPORTANT!
There is a lot of reading in this class. Come prepared and be ready to contribute
to the class discussion. I will call on students randomly. Be prepared.
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It is important that you are proficient in Accounting (preferably Financial
Statement Analysis) and that you have a good understanding of discounted cash
flow (DCF) analysis, weighted average cost of capital (WACC), present value
(PV) and internal rate of return (IRR). Also, proficiency with EXCEL is expected
as we will have some modeling assignments.
If you need clarification or do not understand something chances are that you are
not alone. Don’t be afraid to speak up and ask (especially in the beginning of the
semester as we will be building upon the material presented) – there are no
dumb questions. Also, feel free to ask questions about current events that are
relevant to the course.
NOTE:*****I am more than happy to help students who have questions or need
clarification. I will expect that you understand all of the lecture material unless I
hear otherwise.*****
Grading will be as follows:
Class participation / attendance /
various short assignments (*)
Midterm exam (in class)
Project – group presentation(**)
Final exam (take home) (*)
15%
20%
45%
20%
(*) Remember: spelling and grammar count – please proofread your work.
(**) The group presentation should be done in groups of three.
READING MATERIAL
Reading Packet:
Available at bookstore.
Books:
Monkey Business, John Rolfe and Peter Troob, Warner Books, April 2000.
(Optional) Investment Banking and Brokerage, by John Marshall & M.E. Ellis, Kolb Publishing
Co., 1994.
Harvard Cases:
Harvard Business Review articles:
“Hambrecht & Quist (A) & (B)”
“Second Thoughts on Going Public,” by
Richard Salomon, Harvard Business Review,
September / October, 1977.
“W.R. Hambrecht & Co.: Open IPO”
“Union Carbide”
“USX Corporation”
“The Case of the Combative CFO,” by Nancy
A. Nichols, Harvard Business Review, July –
August, 1992.
How Venture Capital Works”, by Bob Zider,
Harvard Business Review, NovemberDecember, 1998.
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COURSE SCHEDULE
BAFI 460 INVESTMENT BANKING – Fall 2001
TABLE OF CONTENTS
August 30 &
September 6
OVERVIEW / STRUCTURE/ROLES/PLAYERS
Overview
“Corporate Finance: Underwriting and Syndication”, Chapter 3
in Investment Banking and Brokerage, by John Marshall & M.E.
Ellis, Kolb Publishing Co., 1994. (Pgs. 65-99)
“The U.S. Financial System: An Overview”, by Wm. L. Silber and
Gregory F. Udell, Unpublished paper, Stern School of Business, New
York University, December, 1996.
“Goldman Goes for a Bit of Gusto”, by Joseph Kahn, New York
Times, 6/16/98. (plus Summary from Registration Statement)
“Building the Bank of the Future,” by Ian Springsteel, CFO Magazine,
November 1997.
Structure/roles/players
Monkey Business, John Rolfe and Peter Troob, Warner Books,
April 2000.
Harvard Business School case: “Hambrecht & Quist (A) & (B)”
“Organisation and Culture”, by Sir William Purves, Chapter 4 in
Global Investment Banking Strategy, The Economist Intelligence Unit
Limited and A.T. Kearney, Inc., 1998.
“Customer and Product Focus”, by Steven Rattner, Chapter 2 in
Global Investment Banking Strategy, The Economist Intelligence Unit
Limited and A.T. Kearney, Inc., 1998.
“As Wall Street Went One Way, Thomas Weisel Went the Other”,
by Erica Copulsky, Investment Dealers Digest, January 24, 2000.
“The New New Hambrecht,” by Jonathan Rabinovitz, Industry
Standard, March 8, 2000.
“Zookeeping: The Art of Managing a Securities Firm”, by Roy C.
Smith and Ingo Walter, Investment Dealer’s Digest, June 30,
1997.
“Brokerage Industry…Assets that Walk Out the Door Every Night…”,
by Joan Solotar, Donaldson, Lufkin & Jenrette Equity Research
report, April 14, 2000.
“Wit’s Hat Trick”, by Avital Louria Hahn, Investment Dealers Digest,
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June 19, 2000.
“Is This Any Way to Run Wall Street?”, by Jenny Anderson,
Institutional investor, August 2000.
“For E-Offering, Underwriting Proves Tough on the Web,” Wall Street
Journal, January 26, 2000.
*****Discussion of “memo” assignment due next week*****
September 13
PUBLIC EQUITY – GENERAL
*****Hand-in memo *****
“The Making of a Millionaire” by Robert A. Mamis, Inc., May
1995.
“Inside an Internet IPO”, by Robert D. Hof, Business Week,
September 6, 1999.
“Inside the Deal That Made Bill Gates $350,000,000”, by Bro
Uttal, Fortune, July 21, 1986.
“Past Private, Future Public,” by Po Bronson, Forbes ASAP, October
5, 2000.
“The IPO Machine”, Wall Street Journal, Monday, April 19, 1999.
“Answering Questions for Going Public”, by J.W. ”Sean” Dorsey,
Cleveland Enterprise, Summer 1999.
“Beginner’s Guide to IPOs”, Hoover’s Online, Downloaded
10/13/99.
“Advising IPO Candidates,” Techniques & Solutions, The
Globecon Group, Aug./Sep. 1999.
“IPO Costs”, Skills & Applications, The Globecon Group, Aug./Sep.
1999.
“Equity Issuance,” Techniques & Solutions, The Globecon
Group, December 1999.
“Second Thoughts on Going Public,” by Richard Salomon, Harvard
Business Review, September / October, 1977.
“The Orphan Condition: Liquidity Risk, a New Twist in Equity
Pricing,” McDonald Investments, April 1999.
“Major Institutions, Led by Fidelity, Get Most of Hot IPO’s…”, by
Randall Smith, Wall Street Journal, January 27, 2000.
“Morgan Stanley Won Transmeta IPO…”, by Hui-Yong Yu,
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Bloomberg News, November 8, 2000.
*****Begin review of IPO model*****
*****Discussion of IPO Model / Assignment *****
September 20
EQUITY – VALUATION
Harvard Business School case: “W.R. Hambrecht & Co.: Open
IPO”
“IPO Issuers Don’t Mind Money Left on the Table”, by Robert
McGough and Randall Smith, Wall Street Journal, Wednesday,
11/3/99.
“Why Don’t Issuers Get Upset About Leaving Money on the Table in
IPOs?”, by Tim Loughran and Jay Ritter, unpublished paper,
November 2, 1999.
“IPO Pricing,” Bowne Review, December 1999.
*****Continue to work in class on IPO Model*****
*****Discussion of Group Project / Assignment handed out*****
September 27
Guest
EQUITY – LEGAL
John Jenkins, Partner, Calfee Halter & Griswold
“Glass-Steagall: Shattering the Myths”, by George J. Benston, Wall
Street Journal, Wednesday, April 16, 1997.
“The Public Company Filing Calendar”, by John J. Jenkins,
Calfee, Halter & Griswold LLP, July, 1999.
“Mechanics of an Initial Public Offering”, by John J. Jenkins,
Calfee, Halter & Griswold LLP, October 12, 1999.
“GENENTECH/Pillsbury, Madison & Sutro”, Chapter 3 in The
Partners: Inside America’s Most Powerful Law Firms, by James
B. Stewart, Simon and Schuster, New York, 1983.
“SEC Adopts Rule Banning Selective Disclosure,” Calfee, Halter &
Griswold, September 2000.
“Conflicts of Interest”, Chapter 7 of Street Smarts: Linking
Professional Conduct With Shareholder Value in the Securities
Industry. Harvard Business School Press, August 1997.
October 4
Guest
CAPITAL MARKETS/RESEARCH/TRADING/SYNDICATE
Penny Frank, McDonald Investments, Inc.
Trading
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“Exchange or Die”, by Jack Willoughby, Institutional Investor,
November, 1998.
“Big Board Gets Feedback on Nasdaq Concept”, by Greg Ip, Wall
Street Journal, 3/1/99.
“How Electronic Networks Snag Trades”, by Terzah Ewing, Wall
Street Journal, 3/1/99.
“What Traders Do”, by William L. Silber and Roy C. Smith, New
York University, unpublished manuscript.
“Sweeping Change in Market Structure Sought,” by Michael
Schroeder and Randall Smith, Wall Street Journal, February 2,
2000.
“The ECN Dilemma,” by Ian Springsteel and Michelle Celarier,
Investment Dealer’s Digest, March 6, 2000.
“Island Wants Trade-Through Rule Removed,” by Laura Santini,
Investment Dealers’ Digest, October 16, 2000.
“Trading’s Hidden Costs,” by Laura Santini, Investment Dealers’
Digest, August 14, 2000.
“How Any Revamping Might Remove, Add Wrinkles For Investors,” by
Greg Ip, Wall Street Journal, February 29, 2000.
“Trade Union,” by Jennifer Lewis, Red Herring, January 16, 2001.
“Decimalization Cuts Wall Street Profit…” by Gaston Ceron, Wall
Street Journal, September 8, 2000.
“NYSE to consider altering system of decimal trading,” by Jeff
Opdyke and Greg Zuckerman, Wall Street Journal, February 15,
2001.
“NYSE adds decimals, subtracts fractions,” by Jeff Opdyke, Wall
Street Journal, January 29, 2001.
Research
“When a Rosy Picture Should Raise a Red Flag”, by Gretchen
Morgenson, New York Times, July 18, 1999.
“So Many Analysts, So Little Analysis”, by Gretchen Morgenson, New
York Times, 7/18/99.
“Forget Earnings – Try Fully Diluted EEBS!”, by Justin Fox, Fortune,
May 11, 1998.
“Wall Street’s Spin Game”, by Jeffrey M. Laderman, Business
Week, October 5, 1998.
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“A Beginner’s Guide to Analyst Ratings,” by Dagen McDowell,
The Street.com, May 4, 2000.
“New Economy, New Analyst, New Math? Forecast Raises
QXL.com, and Eyebrows,” by Gregory Zuckerman and Jesse
Eisinger, Wall Street Journal, April 7, 2000.
“Analysts Twist Their Yardsticks to Justify P/E’s of Stocks Like
Cisco With Predictable Earnings,” by Susan Pulliam, Wall Street
Journal, April 12, 2000.
“Holding Analysts Accountable,” The Industry Standard, June 2,
2000.
“Love ‘Em and Love ‘Em: Analysts Ride Own IPO’s All the Way
Down,” by Barbara Etzel, Investment Dealers’ Digest, May 15, 2000.
“Sick of Wall Street Analysts’ Cozy Ties, Mutual Funds Push to Hire
Their Own,” by Laura Santini, Investment Dealers’ Digest, November
27, 2000.
“Fund Firms Strengthen Research Teams,” by Allison Colter, Wall
Street Journal, January 2, 2001.
“Dear IPO Co-Underwriter: Work Harder,” by Randall Smith, Wall
Street Journal.
“SEC Intensifies Inquiry into Commissions for Hot IPO’s,” Wall Street
Journal, December 13, 2000.
“Major Institutions, Led by Fidelity, Get Most of Hot IPO’s…” by Smith
and McGhee, Wall Street Journal, January 27, 2000.
October 11
EQUITY – LINKED SECURITIES
“Convertible Securities, A Reference Guide,” First Boston Equity
Research, April 1992.
“Adolescent Angst”, by Brian Garrity, Investment Dealer’s
Digest, October 5, 1998.
“Reconsidering Convertibles”, by Jeff Ryser, CFO, November, 1996.
“The Case for Convertibles”, by Michael J. Brennan and Eduardo S.
Schwartz, Journal of Applied Corporate Finance, Vol. 1, No. 2,
Summer, 1988.
“Pre-IPO Converts Offer Incentives To Go Public,” by Avital Louria
Hahn, Investment Dealers’ Digest, July 24, 2000.
DuPont Unit Issues Rare Type of Zero Convert,” by Avital Louria
Hahn, Investment Dealers’ Digest, July 24, 2000.
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“Evaluating Equity Alternatives,” Techniques & Solutions, The
Globecon Group, April 1999.
“Convertible Securities Markets,” Techniques & Solutions, The
Globecon Group, October 1999.
“The Hybrids Market,” The Globecon Group, 2000.
“Caution: New Rules For Certain Convertible Securities Put Pressure
on EPS,” PriceWaterhouseCoopers, December 7, 2000.
“Burning Issues: Convertible Securities Are This Year’s Big Model,”
by Suzanne McGee, Wall Street Journal, February 1, 2001.
“First Boston’s ‘Son of Tyco’ Deal Goes Sour,” by Suzanne McGee,
Wall Street Journal, February 15, 2001.
*****Discussion of USX assignment due next week*****
Oct 18
SPIN-OFF’s, CARVE-OUT’s and TRACKING STOCKS
*****USX memo due*****
Harvard Business School Case: “USX Corporation”
“Equity Carve-outs: A New Spin on the Corporate Structure,” by
Patricia Anslinger, Dennis Carey, Kristin Fink, and Chris Gagnon, The
McKinsey Quarterly 1997, Number 1.
“Breaking Up Is Good To Do,” by Patricia L. Anslinger, Steven J.
Klepper and Somu Subramaniam, The McKinsey Quarterly 1999,
Number 1.
“More Parent Firms Are Setting Units Free,” by Susan Pulliam, Wall
Street Journal, February 3, 2000.
“Take Part of Me,” by Robert Stow England, CFO Magazine, March
1999.
“Spinning Off Not Always the Best Choice,” Bowne Review,
September 1998.
“New Ruling Clarifies Spin-off Control,” Bowne Review, September
1998.
“How To Execute A Successful Spin-off,” Bowne Review, April 1999.
“Equity Carveouts Yield Long-Term Returns For Shareholders,”
Bowne Review, April 1999.
“The Pros and Cons of Tracking Stocks,” by Sarah Lai Stirland,
Red Herring, December 1, 1999.
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“Are Two Stocks Better Than One?” by Marcia Vickers, Business
Week, June 28, 1999.
“How Quantum, DLJ and Ziff-Davis Are Keeping On Track With
“Tracking Stock,” Bowne Review, February 2000. (Summary)
“How Quantum, DLJ and Ziff-Davis Are Keeping On Track With
“Tracking Stock: Parts I and II” by Jeffrey Haas, wallstreetlawyer.com;
vol.3 no. 4, September, 1999. (Full Text)
“On the Right Track?” by Stephen Barr, CFO Magazine, November
1999.
“Three Steps Back To Pittston,” by Bill Shepherd, CFO Magazine,
February 2000.
“The Truth About Tracking Stocks,” by Deborah Adamson, CBS
MarketWatch, January 5, 2000.
“Tracking Stock: The Past and the Future,” by Robert Rizzi, Mergers
and Acquisitions, May 2000.
“Non-Tax Motivations for Tracking Stock?” by Ingo Natusch, The M &
A Tax Report, vol 8, no. 6, January 2000.
“Engineering Run Amok,” by Ian Springsteel, Investment
Dealers’ Digest, November 13, 2000.
“Tracking Stocks Fail To Justify Their Buzz,” by Robert McGough,
Wall Street Journal, April 15, 2000.
October 25
PRIVATE EQUITY/LBOs/VENTURE CAPITAL
Guest
Jim Irwin & Bill Koehler, McDonald Investments, Inc.
“The Economics of the Private Equity Market”, by Stephen D.
Prowse, Federal Reserve Bank of Dallas Economic Review, Third
Quarter, 1998.
“How Venture Capital Works”, by Bob Zider, Harvard Business
Review, November-December, 1998.
“The Role of Venture Capital in the Creation of Public Companies”, by
Christopher B. Barry, Chris J. Muscarella, John W. Peavy III, and
Michael R. Vetsuypens, Journal of Financial Economics, Vol. 27,
1990.
“The New Economy Beckons,” by Rose Darby, Investment Dealers’
Digest, March 13, 2000.
“VC’s offer analysts a very novel bonus: quality of life,” by Avital
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Hahn, Investment Dealers’ Digest, November 22, 1999.
“The New Smart Money,” by George Moriarty, Investment Dealers’
Digest, November 22, 1999.
“Private Equity: Providers Multiply, Returns Diminish,” The
Globecon Group, November 1999.
“Nice Work If You Can Get It,” by Melanie Warner, Fortune,
December 6, 1999.
“Name Game: More IPO’s Tout Their Famous Investors,” by
Suzanne McGee, Wall Street Journal, October 26, 2000.
“Controversy Rages Over Future Role of Private Equity,” by Ani
Laura Hadjian, Investment Dealers’ Digest, August 7, 2000.
“VC For Everyman,” by Ian Springsteel, Investment Dealers’ Digest,
August 7, 2000.
“Venture Capitalists Still Love Start-ups,” by Suzanne McGee, Wall
Street Journal, May 4, 2000.
“Middle Market Private Equity,” Techniques & Solutions, The
Globecon Group, October/November 1999.
“Out of the Public Eye,” by Ian Springsteel, CFO Magazine, January
2000.
“Bum Deals,” by Gregg Wirth, Investment Dealers Digest, February
12, 2001.
“The Perfect Storm,” by Tom Stein, Red Herring, January 16, 2001.
“New On-Line Network Planned for Private Placement Trading,” by
Christopher O’Leary, Investment Dealers Digest, February 12, 2001.
“An Evolutionary Battle,” by Britt Tunick, Investment Dealers Digest,
March 19, 2001.
November 1
Mid-Term Exam
November 8
Guests
THE CFO’s PERSPECTIVE
Breck Denny, CFO, Lesco & Lou Schneeberger, CFO, Cardinal
Commerce
Harvard Business School Case: “Union Carbide”
Handout: Chief Financial Officer – Areas of Responsibility
Handout: Needs and Wants of a CFO and his/her Investment
Banker
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“Little Fish, Big Pond”, by Joseph McCafferty, CFO Magazine,
May 1999.
“How Morgan Stanley Manages To Get Big Green From Big
Brown,” by Douglas A. Blackmon, The Wall Street Journal,
November 10, 1999.
“The Case of the Combative CFO,” by Nancy A. Nichols, Harvard
Business Review, July – August, 1992.
“The Outlook – 21 predictions for the 21st century,” by Stephen Barr,
CFO Magazine, January 2000
November 15
Guest
FIXED INCOME/DEBT
Ed Pentecost, National City Equity Partners
“The Credit Rating Industry”, by Richard Cantor and Frank
Packer, Federal Reserve Bank of New York Quarterly Review,
Summer-Fall, 1994.
“The Case for Private Placements: How Sophisticated Investors Add
Value to Corporate Debt Issuers”, by Dennis Emerick and William
White, Continental Bank Journal of Applied Corporate Finance, Vol.
5, No. 3, Fall, 1992.
“Treasures in the Junkyard”, by Roy C. Smith, Chapter 7 in The
Money Wars, Truman Tulley Books, 1990.
“Introduction” and “Part 1: An Economic Analysis of the traditional
Market for Privately Placed Debt”, in The Private Placement Market,
by Mark Carey, Stephen Prowse, John Rea, and Gregory Udell,
Board of Governors, Federal Reserve System, December, 1993.
“Financing Leveraged Deals,” Techniques & Solutions, The
Globecon Group, June 1998.
“Spotting for the Market,” by Bill Shepherd, Investment Dealer’s
Digest, December 6, 1999.
“Staying Upbeat,” by Paul Sweeney, Investment Dealers’ Digest,
August 21, 2000.
“Goldman Sits On Bridge Loan After Maneuver Goes Awry,” by Paul
M. Sherer, Wall Street Journal, May 22, 2000.
Nov 16 / 17
FINANCIAL MODELING WORKSHOP – LBO MODEL
November 29
Dec 6
In-class presentations
In-class presentations; Take Home Final Exam distributed.
Dec 14 (Friday)
Take Home Final due.
Note: Highlighted Readings are Required
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