532 Week 13 Objectives
FBE 532 - Class Objectives and Problem Assignments
J. K. Dietrich
Week 13 – April 13, 2006
Goals and Objectives
(1) Describe the role of financial economic theory in defining corporate financial strategy and policy issues
associated with corporate governance
(2) Describe important aspects of the legal environment influencing corporate governance in the United
States and discuss the relevance of U.S. practice on global financial markets
(3) Define insider information and outline the economic and legal issues associated with profiting on the use
of inside information
(4) List and explain major laws governing the use of inside information in the United States and important
cases illustrating the issues in applying laws against use of inside information
(5) Describe strategies to resist unsolicited takeovers and detail financial arguments for and against resisting
sale of a firm by a firm’s current managers
Suggested Review Reading for next Week
No required reading beyond case materials.
Case Questions for Next Case Discussion (Circon (A)**, April 20, 2006)
(1) Should Anheuser-Busch sue Paul Thayer or anyone else? If so, for how much?
(2) Was Anheuser-Busch damaged in this incident?
(3) How would you go about assessing the economic damage due to the insider trading in this case? How
about the non-economic damage?
(4) To whom is Anheuser-Busch responsible in this incident?
Notes: You need to come up with a specific figure for damages if you think payment for damages are due.
Make sure to explain your reasoning in your meme.
Case Questions for Last Case discussed on April 27, 2006 (Vyaderm Pharmaceuticals)
Using data from case Exhibit 8, calculate the following items:
1.
2000 economic value added (EVA) for the North American Dermatology division;
2.
2000 EVA bonus payout for a manager earning $200,000, assuming that the manager’s bonus is
based on 100% on the division’s EVA;
3.
2001 EVA and estimated bonus payout for the same manager, assuming that Vyaderm profits fall
back to historical levels and the EVA improvement goal remains constant.
Note: You do not need to hand in anything for this session: but do read and analyze the case carefully,
including the questions above. This is your last chance to gain class participation credit.
532 Week 13 Objectives
Important Vocabulary List from Class
CORPORATE GOVERNANCE
LEGAL ENVIRONMENT FOR CORPORATIONS
FIDUCIARY RESPONSIBILITIES OF DIRECTORS, LEGAL LIABILITIES
DAMAGES
TRANSPARENCY
INSIDER TRADING, INSIDE INFORMATION, TIPEE
ECONOMIC VALUE ADDED,
Suggested Wall Street Journal or other Articles
April 3 , 2006
“Alcatel’s Merger With Lucent Stirs Culture Questions” (A1) – Completion of a major investment like
another firm, as you analyzed in CCI case this semester, poses real issues in implementation
“Companies Across U.S. Plan to Put Cash to Work, Giving Possible Boost to Global Economy” (A2) –
Corporate use of cash, as we discussed in Avon case, is discussed
“Takeover of VNU to Begin With Explanation of Price” (A2) – Value in acquisition is explained by
directors because some shareholders thought the price too low, illustrating importance of valuation
in corporate governance
“GM to Sell GMAC Stake to Cerburus” and “Constellation Is Close to a Deal For Canadian Winemaker
Vincor” (both A3) – Stories are other illustrations of the central role of valuation plays in
corporate strategies
“Seronon seeks $5,4 Billion Share Issue” (A10) – Corporate plans require more capital and firm chooses
equity over debt, illustrating the capital-structure issue we discuss later
“Shareholder Insurrection Infects Novartis’s $5.1 Billion Chiron Bid” (C3) – Another dispute over a
corporate valuation raises corporate governance challenges for management
April 4 , 2006
“Sign of the Times: A Deal for GMAC By Investor Group” and “GM’s Wagoner Gains Some Time for
Turnaround” (both A1) – Good and important stories about role of private-equity firm in GM’s
effort to restructure and survive
“Novartis Raises Chiron Bid, Vitually Sealing Deal” (A2) – Response to dissident shareholders’ complaints
about low valuation in offer
“Computer Sciences Hold Talks on Possible Sales” (A3) – Another restructuring deal depending on
valuations
“Stock Activism’s Latest Weapon” (C1) – Another move by shareholders to exert control over
management, illustrating corporate-governance issues discussed this week
“Rating Providers Remain Cautious On GMAC Bonds” (C1) – Rating agencies’ importance in costs of
issuing debt and the potential costs of financial distress illustrated as in UCC and PPL cases
April 5, 2006
“Arcelor Trans fers Dofasco Unit to Block Takeover” (A3) – Corporate tactic to defeat takeover attack
shows effort of management to retain jobs
532 Week 13 Objectives
“Need Cash? Call a Hedge Fund” (C1) – Changing market for investments by private-equity funds
April 6 , 2006
“Coke Directors Agree to Give Up Pay If Company Misses Earnings Goals” (A1) – Bold move illustrates
pressure on boards to perform and increasing importance of governance issues at major firms
“Small Firms’ Sarbanes Suffering?” (C1) – Discussion of issues of costs of improving corporate reporting
in SOX
“Tokyo Seeks to Be All-Asia Stock Exchange” (C1) – Story illustrates importance of concentrating trading
in international equity markets as discussed last week
April 7 , 2006
“Lyondell, Citgo to Put Refinery In Houston on Auction Block” (C2) – Sale of a major asset illustrates
asset-sale approach to restructuring
“Easy Money? Banks Get Lenient on Loans” (C1) – Story talks about terms being loosened in competitive
loan markets, resulting in fewer “covenants,” as we will discuss later
April 9-9, 2006
“Dunkin’ Donuts Tries to Go Upscale, But Not Too Far” (A1) – Good story illustrates the types of changes
in corporate strategy a buyer of a company can make, a problem similar to your group if you
choose to buy the entire firm and change operations
“AU Optronics To Buy LCD Maker For $2.2 Billion” (A3) – Another corporate acquisition illustrating the
central importance of valuation in corporate strategy
“Is General Motors Unraveling?” (A7) – A “Hot Topic” summary of major issues in GM attempt to survive
“LSE Chief Shows Skill on Defense, But Now What?” (B1) – London Stock Exchange stays independent in
face of global consolidation of equity markets as discussed last week in class