Case Western Reserve University, Weatherhead School of Management
BAFI 460: Investment Banking
Fall 2005
Professor:
Scott A. Fine
Contact Info:
WSOM Office:
WSOM Phone:
Cell Phone:
Home Phone:
E-Mail:
366 Peter B. Lewis Building
216.368.0909
216.533.3590 (voicemail available 24 hrs.)
216.751.7599 (8:00 am – 10:00 pm)
scott.fine@case.edu
Class Meeting Time: 6:00 – 8:00 p.m. Tuesdays
Classroom:
Peter B. Lewis Building, Room 401
Office Hours:
Monday and Wednesday or by appointment.
meetings with me, as I often travel.
Pre-Requisite:
BAFI 403 – Financial Management II. In addition, students should
have experience with financial modeling using Microsoft Excel.
Please confirm
COURSE OVERVIEW AND TEACHING GOALS
This is an introductory class about Investment Banking. We will discuss the structure of
the overall industry and the strategic and regulatory challenges facing industry
participants. By the end of the course, students will also understand the different functions
and departments within an investment bank, and how they work together to deliver
products and services to issuing and investing clients. There will also be some discussion
of how investment banks are managed, how clients are managed, and how bankers
themselves are managed and compensated.
Most of our focus will result from peering inside an investment bank to understand the
products and services they offer, both as agent and principal. Topics discussed will
include: (i) raising public and private capital for clients, (ii) providing financial advisory
services with a particular focus on mergers and acquisitions and leveraged buyouts and
(iii) trading and investing for the firm’s own account with a particular focus on private
equity. Although important functions, we will not spend significant time discussing retail
brokerage, private wealth management, third party asset management, market making or
proprietary trading.
My teaching goals are to expose students to the industry overall, its key players, different
departments within specific organizations, and their key functions. Students will also be
exposed to the tools, processes and mechanics used by investment banks to raise equity
capital, provide strategic M&A advice and to effectuate leveraged buyouts. We will spend
considerable time in and out of the classroom using Microsoft Excel models as part of our
modules on initial public offerings, mergers and acquisitions and leveraged buyouts. You
will get substantial experience with Excel based financial models in this class.
While focused on investment banking, many of the topics discussed and analytic methods
presented form the foundation for careers in commercial and investment banking,
investment management, corporate finance and treasury management.
READINGS AND CASES
There is one required book, which is available at the CWRU Bookstore and at most large
bookstores. This book is a humorous account of life as an investment banker, and should
be read prior to the first session:
Monkey Business, John Rolfe and Peter Troob, Warner Books, April 2000.
The Course Packet is available in the CWRU Bookstore and contains all of the required
reading materials and cases for the course. I will also hand out supplemental reading
information from time-to-time. Finally, lecture notes will be made available during the
course of the semester. I plan on using Blackboard to post lecture notes as well as
assignments.
There is a lot of reading in this class. While you are expected to read all of the materials, I
will make it clear which materials must be read in detail, and which can be skimmed and
used as a reference.
I would also strongly encourage all students to read The Wall Street Journal on a daily
basis, as well as weekly periodicals such as Business Week, Fortune and Forbes.
There are also several other textbooks that cover various aspects of the industry, and may
be used as a helpful reference:
Investment Banking and Brokerage, by John Marshall & M.E. Ellis, Kolb Publishing
Co., 1994.
The Business of Investment Banking, by Thomas Liaw, John Wiley & Sons Inc.,
1999.
Doing Deals: Investment Banks at Work, by Robert G. Eccles and Dwight B. Crane,
Harvard Business School Press, 1998.
The Investment Banking Handbook, by J. Peter Williamson, Wiley-Interscience,
1998.
Vault Career Guide to Investment Banking, by Tom Lott, Vault Reports Inc., 2001.
In addition, there are countless good popular books that provide insight into various firms,
events and issues. I would be happy to provide suggestions upon request. Some of my
favorites are Liar’s Poker by Michael Lewis (the trading culture at Salomon), Den of
Thieves by James B. Stewart (the insider trading scandal of the 1980s), The Predator’s
Ball by Connie Bruck (the rise and fall of Drexel during the junk bond era), Barbarians at
the Gate by Bryan Burrough and John Helyar (an in-depth look at one of the biggest LBOs
ever), Goldman Sachs: The Culture of Success by Lisa Endlich, When Genius Failed by
Roger Lowenstein (the Long Term Credit fiasco), and Tearing Down the Walls by Monica
Langley (biography of Sandy Weill and his Wall Street career).
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GRADING
For some assignments, you will be encouraged and/or required to work in small groups
(3-4 members). If you work in a group, only one write-up should be submitted for the
group, with all members clearly listed. All members will receive the same grade for that
assignment.
Your grade will be based on the following:
Four (4) Case Write-Ups
Group Presentation
Class Participation/Peer Review
Take-Home Final Exam
40
20
15
25
(10 points each)
(Quantity and quality)
Note: All written assignments and the group presentation should be done to the same
standards as a real work setting. In all cases, please proofread your work to check for
grammar, spelling, etc. I also value concise, cogent work over voluminous pages of
incoherent gibberish.
COURSE SCHEDULE AND ASSIGNMENTS
Note: Materials should be read prior to the class in which they are listed.
Tues. August 30th
Primary Functions, Industry Overview and Key Players
Monkey Business, John Rolfe and Peter Troob, Warner Books, April 2000.
“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.
“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.
“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)
*** Discussion of Case Assignment #1 Due Next Week ***
Tues. September 6th
Case Discussion: Three Key Players
Introduction to Initial Public Offerings
*** Case Assignment #1 Due at Beginning of Class ***
“The Goldman Sachs IPO (A),” Ashish Nanda, Malcolm Salter, Boris Groysburg and
Sarah Matthews, Harvard Business School Publishing, 2002.
“Donaldson, Lufkin and Jenrette, 1995 (Abridged),” Case 25 in Case Studies in Finance,
Managing for Corporate Value Creation, Robert F. Bruner, McGraw-Hill Irwin, 2003
(pages 304-332).
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“Hambrecht & Quist (A) & (B)”, Thomas DeLong & Nicole Tempest, Harvard Business
School Publishing, 1999 and 2000.
The first hour will be a case discussion of the three assigned cases. You will only be
responsible for fully preparing one of them.
After the break and next week, the lecture will highlight why companies go public, the
process and mechanics of going public, the costs of going public to the issuer, and the
profitability of IPOs to the underwriters. We will also review the IPO model. There are
many readings for this week and next, all of which are listed for next week. Please pace
yourself accordingly.
I will hand out questions to consider for the first three readings for next week. In prior
semesters, I assigned these readings as a case write-up. To lighten the workload, we
will discuss these in class. Please be prepared to discuss the questions.
Tues. September 13th
Public Equity – Initial Public Offerings
*** Discuss Case Assignment #2 Due in two Weeks ***
*** Discuss Group Presentation due in five weeks ***
*** Discuss Detailed Work Program for Group Presentation ***
“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.
“Equity Issuance,” Techniques & Solutions, The Globecon Group, December 1999.
“The Issue Process for Public Securities,” Darden Publishing.
“Mechanics of an Initial Public Offering,” by John J. Jenkins, Calfee, Halter & Griswold
LLP, October 12, 1999.
Profile of Investment Banking Contacts – Evaluation criteria for choosing RELTEC
managers
RELTEC IPO Summary Schedule
“IPO Costs,” Skills & Applications, The Globecon Group, Aug./Sep. 1999.
Spreadsheet – Sample Economics of Public Offering
“What Traders Do,” by William L. Silber and Roy C. Smith, New York University,
unpublished manuscript.
“Chinese Walls and Research Coverage of Active Corporate Finance Clients,” by John
J. Jenkins and Joseph C. Letizia, Presentation for Calfee, Halter & Griswold
(unpublished), April 3, 2000.
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Tues. September 20th
Public Equity – Positioning and Valuation
Depending on class size, we will meet in the computer training room down in the
basement.
“Note on Dilution.”
“Note on Public Equity Valuation.”
“Advertising Valuation” from Lauren Rich Fine.
Excerpts from “Eskimo Pie Corporation,” Harvard Business School Publishing.
“Valuation Analysis – Company A Initial Public Offering,” a spreadsheet model.
Case study materials on “1-800 Contacts” initial public offering.
Tues. September 27th
Public Equity – Positioning and Valuation Continued
Guest: Lauren Rich Fine, First Vice President and Managing Director, Equity Research,
Merrill Lynch
Tues. October 4th
Case Discussion: “Eagle Finance Corp.”
*** Case Assignment #2 Due at Beginning of Class ***
“Eagle Finance Corp.”, Susan Chaplinsky, Darden Business Publishing, 1995.
Tues. October 11th
Fixed Income – Investment Grade Debt, Private
Placements, Syndicated Bank Debt and High Yield Debt
“Note on Bank Loans,” Susan L. Roth and Scott B. Mason, Harvard Business School
Publishing, 1993.
Optional Readings:
“Financing Leveraged Deals,” Techniques & Solutions, The Globecon Group, June
1998.
“The Credit Rating Industry”, by Richard Cantor and Frank Packer, Federal Reserve
Bank of New York Quarterly Review, Summer-Fall, 1994.
“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.
“Treasures in the Junkyard,” by Roy C. Smith, Chapter 7 in The Money Wars, Truman
Tulley Books, 1990.
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Tues. October 18th
Group Presentations on IPOs
*** Group Projects Due at Beginning of Class ***
Presentations and discussion of IPO candidates
Tues. October 25th
Convertible Securities, Mezzanine Financing, Preferred
Stock and Product Innovation
Required Reading:
“The Origin of LYONs: A Case Study in Financial Innovation,” by John J. McConnell and
Eduardo S. Schwartz, Chapter 24 of The New Corporate Finance: Where Theory Meets
Practice, Donald H. Chew, McGraw-Hill Companies, Inc., 2001.
Optional Reading:
“Convertibles Special Report,” by Anne Cox, Merrill Lynch, 2000.
Tues. November 1st
Leveraged Buyouts and Venture Capital
Work in class on LBO Model.
Review high-yield, mezzanine and syndicated loan materials from earlier in term.
“The Economics of the Private Equity Market,” by Stephen D. Prowse, Federal Reserve
Bank of Dallas Economic Review, Third Quarter, 1998.
“Technical Note on LBO Valuation (A),” Carliss Baldwin, Harvard Business School
Publishing, 2001.
Optional Readings:
“A Note on Valuation in Private Equity Settings,” Josh Lerner and John Willinge, Harvard
Business School Publishing, 2002.
*** Discuss Case Assignment #3 Due Next Week ***
Tues. November 8th
Leveraged Buyout Case
*** Case Assignment #3 Due at Beginning of Class ***
“Dressen,” Harvard Business School Publishing, 2005
Tues. November 15th
Mergers and Acquisitions
Presentation will be posted on Blackboard. We will discuss this presentation during
class, including walking through the various valuation methodologies.
*** Discuss Case Assignment #4 Due in Two Weeks ***
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Tues. November 22nd
Client Management and the CFO’s Perspective
Guests TBA
“The Union Carbide Deal (Abridged),” Thomas DeLong, Harvard Business School
Publishing, 1999.
Handout – Chief Financial Officer Responsibilities and Needs and Wants
Review “Customer and Product Focus” and “Organisation and Culture” from first class.
Tues. November 29th
Mergers and Acquisitions
*** Case Assignment #4 Due at Beginning of Class ***
“Structuring Repsol’s Acquisition of YPF S.A. (A),” Case 44 in Case Studies in Finance,
Managing for Corporate Value Creation, Robert F. Bruner, McGraw-Hill Irwin, 2003
(pages 629-657).
Tues. December 6th
Wrap-Up and Discussion of Final
We will touch upon several topics that weren’t addressed during the term, including Real
Estate, Structured Finance, Project Finance, Restructuring, Asset Management, etc. We
will also revisit the syllabus to wrap-up the course. Finally, we will discuss the takehome final and provide time for Q&A and to complete the course evaluation form.
Tues. December 13th
Earlier!)
Take Home Final Due by 5 p.m. (Can Be Submitted
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