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FBE 532 CORPORATE FINANCIAL STRATEGY Syllabus Spring 2013 Tuesdays, Thursdays, 12:30-

1:50pm, JKP 112


Professor: J. Kimball Dietrich Office: ACC 301G Office Phone: 213-740-6539 E-mail: kdietrich@marshall.usc.edu Office Hours: Tuesdays, Thursdays 4:00-5:30pm, or TBA COURSE OBJECTIVES The primary objective of Corporate Financial Strategy is for students to understand the decisions facing a corporate chief financial officer (CFO) and his or her staff, to appreciate the implications of financial theory in real situations (cases), and to be able to analyze and communicate the implications of their analyses to an informed audience. A second objective is for students to appreciate the demands and opportunities of pursuing careers in different functions of finance, such as investment banking, commercial bank lending, or providing other financial services to corporate financial management. This is a case-based course and will make extensive use of both Harvard Business School cases and two Harvard notes related to case discussion. The course outline is organized around examples of major corporate financial decisions, emphasizing the roles played by financial professionals in different financial decision-making areas. A major objective of the class is for students to refine and expand specific skills and use of financial analytical tools in a real-world context and be able to think critically and defend or objectively criticize their analyses or those of other students. At the conclusion of FBE 532, students will be able to: Value companies; Link capital structure to valuation; Analyze motivations for mergers and acquisitions; Appreciate the significance of ownership structure on value and performance; Relate business and financial strategies; Assess strategic factors affecting corporate investment; Compare alternative sources of financing; Use derivatives (e.g. futures, options, and swaps and others) to manage risk; Integrate shareholder wealth creation in formulating corporate decisions.

PREREQUISITES The basic requirements for Corporate Financial Strategy are the required core courses in the first year of the MBA program. It is assumed that students are thoroughly familiar with the contents of GSBA 548 and its assigned text. Other advanced courses in finance may be useful but are not required as preparation for FBE 532. REQUIRED AND RECOMMENDED READINGS A Course Reader for this section of FBE 532 Corporate Financial Strategy is available at the USC bookstore and is required. It is available in hard copy or downloadable form. In addition, other readings will be posted on Blackboard or available on the web. Recommended background readings for class discussion and case preparation are provided in the course schedule and the Recommended

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Chapters for Review table below where recommended readings are based on the MBA-level text, Corporate Finance, by Ross, Westerfield, and Jaffe, 9th edition (RWJ), used in many Marshall School MBA required core finance classes. Students may review subjects in corresponding chapters of texts other than RWJ if they choose. The table relating RWJ to topics discussed in this course includes chapter titles that should be similar to those in other standard texts. I will provide guidance if necessary. Students are expected to follow business developments reported in the business press, especially the Wall Street Journal, and it is highly recommended that students also read other periodicals, especially The Economist and Fortune magazines. COURSE ORGANIZATION Case discussions are scheduled to illustrate basic financial problems and different aspects of the finance function in firms. Lectures and recommended textbook or other background readings covering important issues raised in each case will precede the case discussion for the following class. Students in the class will be formed into groups of three or four students after enrollment has stabilized to work outside of class to discuss, analyze, and write-up assigned cases as discussed below. All students must be prepared to answer questions and discuss issues (often on a cold-call basis) raised by these cases during the class discussion or as part of the written examinations discussed below. I will distribute a list of questions for each case to provoke thinking but these questions are not to be taken literally or as guides to case solutions: the case analysis should be a coherent assessment of these and other issues. Case analysis is time consuming and several readings of the case will be necessary. Students should allow plenty of time to survey the case contents, digest case facts, and analyze issues raised. You may not be able to identify a single theme or issue: cases may involve marketing and accounting and other business disciplines as well as financial issues. Students should focus only on the financial implications of business problems described in the case. There is no right answer to a case and none will be distributed. Analyses and discussion must be clearly related to the finance issues in the case. All written case analyses must include a cover sheet giving the case name and listing the group members (alphabetically by last name) for the group write-ups described below. There are two types of case write-ups to be handed in by groups according to assignments on a sign-up schedule completed in the second week of classes: (1) Each week three groups will be assigned as Case Presenters to discuss and debate their case analyses and recommendations for the class as outlined in a Case Presentation Memorandum; (2) Case Issue Summaries are required from each group not presenting cases that week; For the case discussions, the three groups will take primary responsibility for presenting each case and will present their analysis in the form of a Case Presentation Memorandum written for key decision-makers assuming that the audience is financially sophisticated and will contain exhibits used in presenting their analysis to the class. Students should stick to the finance issues raised by the case, i.e. do not review a corporations business or history. Case Presentation Memorandum will consist of analysis and recommendations limited to one to one-and-half pages (typewritten and double spaced) in length. The presenting groups should be ready to both lead the class case discussion and analyze and explain differences in their groups positions. An exhibit appendix may contain several pages of graphs, spreadsheets, or data, also to be used as PowerPoint presentations to the class, which are expected to make the case analysis clearer.

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Case Issue Summaries (for non-group presenters) should be one page in length and can be outlines or bullet points on major issues raised in the case, description of the important relevant data and a brief outline of appropriate analysis in making a decision, a summary of key assumptions and their implications for decisions, and a brief description of recommendations for decision makers.. No credit will be granted for a case write-up for either a Case Presentation Memorandum or an Case Issue Summary handed in after the beginning of the class discussion of the case. Students should retain a copy of their write-ups for reference during the class discussion. ELECTRONIC RESOURCES FBE 532 has a course website available through Blackboard (course 15411). I will distribute course materials (overhead transparencies and weekly course objectives together with vocabulary lists and recommended current newspaper or periodical readings) through the website, usually available by Monday morning of the weeks class. Excel files containing the most important data from the cases will also be posted on the website. It also contains links to useful financial information and data sources available on the Internet. . STUDENT DISABILITIES Any student requesting academic accommodations based on a disability is required to register with Disability Services and Programs (DSP) each semester. A letter of verification for approved accommodations can be obtained from DSP. Please be sure the letter is delivered to me as early in the semester as possible. DSP is located in STU 301 and is open 8:30 a.m. - 5:00 p.m., Monday through Friday. The phone number for DSP is (213) 740-0776. COURSE GRADING There will be a midterm and a final examination: the midterm counts once and the final twice, and I will drop the worst of the three scores (e.g. if the midterm is 50 and the final 90, the student receives 90, whereas if the midterm is 90 and the final 50, the student receives 70 as an average for the two exams.) Course grading will be based on the following weights: Class Participation 10% Groups Case Analyses 45% Three Case Presenter memoranda Case Issue Summaries Midterm and final exams 45% TOTAL 100%

30% 15%

Class participation will be based on students ability to respond to cold-call questions (on a random basis) and on class attendance. Two classes can be missed without penalty if assigned work is submitted prior to the beginning of class. A session grade will to students after each class on a 4point scale: 1 = present but unprepared, 2 = read case and had partial understanding of issues, 3 = understood case issues, 4 = contributed to class understanding of case issues. Zero credit is given when a student is called upon and is absent. There is no reward for talking at length or repeating my comments. The group case write-ups and presentations will be graded on completeness, clarity, and persuasiveness of the written presentation.

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FBE 532 CORPORLATE FINANCIAL STRATEGY -- COURSE SCHEDULE 2013


Dates Week 1 January 15-17 Week 2 January 22-24 Week 3 January 29-31 Week 4 February 5-7 Week 5 February 12-14 Week 6 February 19-21 Week 7 February 26-28 Week 8 March 5-7 Week 9 March 12-14 Week 10 March 26-28 Week 11 April 2-4 Week 12 April 9-11 Week13 April 16-18 Week 14 April 23-25 Week 15 April 30-May 2 FINAL May 15 Weeks Lecture Topic Weeks Case Discussion Text Review and Readings* Ch. 20 Ch. 18 Ch. 13 Ch. 71 Ch. 72-4 Reading 1 Ch. 9 Ch. 29

I. INTRODUCTION AND PRACTICE CASE OVERVIEW Corporate finance and case analysis: Introduction to practice case Case 1: The Union Carbide Deal (Abridged) (HBS 9-897-201) II. THE INVESTMENT DECISION: PRESENT VALUES Case 2: Sampa Video (HBS 9-201-084)* II. THE INVESTMENT DECISION: COST OF CAPITAL Case 3: Marriott Corporation (Abridged) (9-289-047) II. THE INVESTMENT DECISION: PROJECT ANALYSIS Case 4: Airbus A3XX: Developing the Worlds Largest Commercial Jet (A) (HBS 9-210-028)* II. THE INVESTMENT DECISION: OPTIONS & DECISION TREES Case 5: Merck and Co: Evaluating a Drug Licensing Opportunity (HBS 9-201-023)* II. THE INVESTMENT DECISION: VALUATION Case 6: Valuation of AirThread Connections (HBS 4263)* II. THE INVESTMENT DECISION: MERGERS Review of Analysis and Case Discussions Midterm Examination Case 7: Roches AcquisItion of Genentech (9-210-040)* III. THE FINANCING DECISION: FINANCING GROWTH Case 8: Financing PPL Corporations Growth Strategy (HBS 9202-045)* III. THE FINANCING DECISION: RISK MANAGEMENT Case 9: Liability Management at General Motors (9-293-123) *IV. WORKING CAPITAL: MANAGEMENT Case 10: Dell Working Capital (HBS 9-201-029)* IV. WORKING CAPITAL: CASH DISTRIBUTIONS Case 11: Avon Products (HBS 9-289-049)* V. GOVERNANCE: BOARD RESPONSIBILITIES Case 12: Circon (A) (HBS 9-801-403)* V. GOVERNANCE: COMPENSATION ISSUES Case 13 Vyaderm Pharmaceuticals (HBS 9-101-019 COURSE SUMMARY AND FINAL REVIEW Final Examination 2:00-4:00pm

Chs. 17 & 21 Ch. 25, Reading 2 Ch. 28 Ch. 19 Ch. 1 Reading: SternStewart

* Chapter references are to RWJ

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FBE 532 CORPORATION FINANCIAL STRATEGY CASES AND READINGS 2013 I. INTRODUCTION AND PRACTICE CASE

Date Discussed
Case 1 The Union Carbide Deal (Abridged), (HBS 9-897-201) II. THE INVESTMENT DECISION Sampa Video (HBS 9-201-084) Marriott Corporation (Abridged) (9-289-047) Airbus A3XX: Developing the Worlds Largest Commercial Jet (A) (HBS 9-210 028) HBR Article: Dixit and Pyndyck, The Options Approach to Capital Investment Merck and Co: Evaluating a Drug Licensing Opportunity (HBS 9-201023) Valuation of AirThread Connections (HBS 4263) Roches AcquisItion of Genentech (9-210-040) III. THE FINANCING DECISION AND RISK MANAGEMENT January 22

Case 2 Case 3 Case 4 Reading 1 Case 5 Case 6 Case 7

January 29

February 5 February 12 February 14 February 19 February 26 March 12

Case 8 Financing PPL Corporations Growth Strategy (HBS 9-202-045) March 26 Reading 2 HBS Note: Interest Rate Derivatives (9-294-095) March 28 Case 9 Liability Management at General Motors (9-293-123) April 2 IV. WORKING CAPITAL: MANAGEMENT AND CASH DISTRIBUTIONS Case 10 Case 11 Dell Working Capital (HBS 9-201-029) Avon Products (HBS 9-289-049) V. GOVERNANCE AND COMPENSATION ISSUES Circon (A) (HBS 9-801-403) Vyaderm Pharmaceuticals (HBS 9-101-019)

April 9 April 16 April 23 April 30

Case 12 Case 13

Recommended Chapters to Review for Topics Listed RWJ** Issuing Securities to the Public (Investment Banking) 20 Valuation and Capital Budgeting for the Levered Firm 18 Risk, Cost of Capital, and Capital Budgeting 13 Risk Analysis, Real Options, and Capital Budgeting 7 Stock Valuation 9 Mergers, Acquisitions, and Divestitures 29 Capital Structure: Basic Concepts & Limits to Use of Debt 16 and 17 Derivatives and Hedging Risk 25 Credit and Inventory Management 28 Dividends and Other Payouts 19 Introduction to Corporate Finance 1 ** Chapter titles should be similar in alternative texts

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