Case Western Reserve University, Weatherhead School of Management
BAFI 460: Investment Banking
Spring 2008
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. Mondays
Classroom:
Peter B. Lewis Building, Room 401
Office Hours:
By appointment.
Pre-Requisite:
BAFI 403 – Financial Management II. In addition, students should
have experience with financial modeling using Microsoft Excel.
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. You will learn
how to value companies in a variety of markets – the public equity market, the strategic
merger and acquisition market, and the leveraged buyout (financial buyer) market.
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 $50.00 and is available in Tedda Nathan’s office (PBLB 371).
Please bring her a check for that amount payable to “Case,” or bring cash. If you need to
make arrangements with her outside of normal business hours to make payment and/or
pick up materials, please call her at 216.368.2040. The packet 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.
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.
Mon. January 14th
Primary Functions, Industry Overview and Key Players
Monkey Business, John Rolfe and Peter Troob, Warner Books, April 2000.
“History of Investment Banking,” Ashish Nanda, Thomas Delong and Lynn Wadalid Roy,
Harvard Business School Publishing, 2002.
*** Discussion of Case Assignment #1 Due Two in Weeks ***
Mon. January 21st
No Class – MLK Day
Mon. January 28th
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.
“Investment Banking at Thomas Weisel Partners,” Malcolm Baker and Lauren Barkley,
Harvard Business School Publishing, 2006
“The Credit Suisse Group (A),” Ashish Nanda and Kelley Morrell, Harvard Business
School Publishing, 2001.
The first hour will be a case discussion of the three assigned cases. You will only be
responsible for fully preparing one of them.
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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.
Mon. February 4th
Public Equity – Initial Public Offerings
*** Discuss Case Assignment #2 due in two weeks ***
*** Discuss Group Presentation due in four weeks ***
*** Discuss Detailed Work Program for Group Presentation ***
“The Issue Process for Public Securities,” Darden Publishing.
“The Initial Public Offering, A Guidebook for Executives and Boards of Directors,”
various contributors, Bowne, 2004 (to be posted electronically.)
Profile of Investment Banking Contacts – Evaluation criteria for choosing RELTEC
managers (to be distributed.)
RELTEC IPO Summary Schedule (to be distributed.)
Spreadsheet – Sample Economics of Public Offering (to be distributed.)
Mon. February 11th Public Equity – Positioning and Valuation
“Note on Dilution” (to be posted online.)
“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 (to be
distributed.)
Case study materials on “1-800 Contacts” initial public offering (to be distributed.)
Mon. February 18th Case Discussion: “UPS Initial Public Offering”
*** Case Assignment #2 Due at Beginning of Class ***
“United Parcel Service’s IPO,” Paul Healy, Harvard Business School Publishing, 2002.
Mon. February 25th Public Equity – Practitioner’s Perspective
Guest Lecturer TBD
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Mon. March 3rd
Group Presentations on IPOs
*** Group Projects Due at Beginning of Class ***
Presentations and discussion of IPO candidates
Mon. March 10th
SPRING BREAK (No class)
Mon. March 17th
Syndicated Bank Debt, High Yield Debt and Credit Analysis
Required Reading:
Standard & Poor’s Corporate Ratings Criteria, 2006 (to be distributed.)
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 (to be distributed.)
Mon. March 24th
Leveraged Buyouts and Venture Capital
Work in class on LBO Model (to be distributed.)
Review high-yield, mezzanine and syndicated loan materials from earlier in term.
“Technical Note on LBO Valuation (A),” Carliss Baldwin, Harvard Business School
Publishing, 2001.
“Note on Leveraged Buyouts,” Fred Wainwright and Colin Blaydon, Tuck School of
Business, Dartmouth College, 2003 (to be distributed.)
*** Discuss Case Assignment #3 Due Next Week ***
Mon. March 31st
Leveraged Buyout Case
*** Case Assignment #3 Due at Beginning of Class ***
“Dressen,” Thomas R. Piper and Jeremy Cott, Harvard Business School Publishing,
2005.
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Mon. April 7th
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 Next Week ***
Mon. April 14th
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).
Client Management and the CFO’s Perspective
“The Union Carbide Deal (Abridged),” Thomas DeLong, Harvard Business School
Publishing, 1999.
Handout – Chief Financial Officer Responsibilities and Needs and Wants (to be
distributed.)
Mon. April 21st
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.
Mon. April 28th
Take Home Final Due by 5 p.m. (Can Be Submitted Earlier!)
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