Green new deal

Week 9–Discussion topic for the week.

Discussion Topic

Several renewable energy companies have gone bankrupt in recent years. Several ethanol companies have gone out of business and others have reduced capacity.

If we are at the mercy of foreign oil suppliers OPEC, etc.), should the government step in to provide funding for these bankrupt alternative energy companies?

Note that there have been some interesting developments in terms of oil production and oil reserves, basically the oil that can be pumped in the future.

It would also be good to look at actual oil use in the US. In looking at the statistics, please use an eagle eye. The country is pulling out of a recession and last winter was warm. So, don’t be fooled by some interpretations of oil usage.

So, what do you think?

 

Funding to energy company which is about to bankrupt wouldn’t be good idea even if U.S. economy actually needs huge amount of oil.

As oil market history, it seems now is the time to clean global environment by green new deal policy. Obama is trying to take an opposite position of Bush because of his bad reputation due to his family business. Bush senior protected U.S. from threat of Soviet Union which intended to interrupt oil line between Middle East and U.S. and Bush junior succeed his father’s business and tried to get oil from Middle East through some wars. However, the family couldn’t make good job. In 1930s, United States used to make amount of oil in Texas but gradually it ceased to exist. Moreover, middle east countries hated their ethnocentric attitude and stopped providing oil into U.S. at the time. The one thing I can say is that the reason why Obama is insisting “Green new deal” is just U.S. cannot find any more opportunities within country and needs to rely on other resources.

Above all, it looks funding to clean energy company is better than funding to oil company in this situation. However, emission trade hasn’t been so popular yet in U.S. U.S. was not interested in Kyoto protocol too. Their environmental business problems piled up. There is almost no market such as financial derivatives for environmental problem such as Eco-fund.

In conclusion, we cant choose which company deserves to get funding. Government should spend money for global business structure and rule such as emission trade, which induce investor’s incentive.

 

GM

 

Assignment 7 : After reading Chapter 11, do some research on General Motors (GM), the most dramatic restructuring in bankruptcy case in recent business history. Write a brief commentary (400 – 600 words) on the most critical Mergers and Acquisitions conceptrevealed in the GM situation. Look at issues discussed in Chapter 11 as well as lecture notes from all weeks. State how the facts in the case of General Motors relate to the concept.

A few perameters for your paper:

• Keep the focus on finance not on politics or marketing

• Do not describe the history of General Motors – when it was founded, who founded it, etc.

 

First, it’s good for us to explain GM from the government’s point of view. President Obama nationalized them to render their stocks go private and protected them from hostile takeover in 2008. From 2010, it started to go public, but the stock price usually went down to $20 per share in spite of $36 as the IPO price. Reelection of Mr. Obama is fortunate for GM but government have to take a responsibility for their distressed security. It usually regards as good opportunity for investors to invest into distressed security such as stakes of financial failure but the economic failure prevented this kind of incentives at that time.

Secondly, it is strongly related in term of subprime crisis. People can’t afford to buy a car due to insolvents of their housing. There are also other competitors who formed strategic alliance such as Nissan-Renault and Chrysler-Fiat. Nissan and Renault are actually failed to form alliance but they could at least change the situation and share their perspective of each business. However there is no innovative action on GM.

Thirdly, from the customer’s point of view, there is a huge marketing issue on GM. GM tried to sell their between $3000 and $10000 less than Toyota’s car. GM was proud of their brand equity but there are no more differentiations between Toyota’s strategies.

Finally, I would like to talk this in term of Mergers and Acquisitions. As I mentioned, there is no Crown Jewel to attract investor and hedge fund and it is already too serious to implement spin-off for redemptions because it is including branding issues. Mainly, it was already nationalized. If we want to take over it, we would go thorough government. They are reorganizing themselves but it is too burdensome for common hedge fund managers or turnaround managers to save them from their serious situation.

In conclusion, there are a lot of strategies for hostile takeover bid such as poison pill, packman defense, white knight and Shark repellents but in this case, nobody wants to buy GM in this situation. They have to consider how their stake will be attractive and take back their brand equity.

 

Carl Icahn

Week 8–Discussion topic for the week.

Discussion Forum

Carl Icahn is now a large shareholder in Blockbuster. As everybody knows, Netflix has taken a good deal of market share from Blockbuster. Icahn says alternately that he is happy and unhappy with his investment. Do not be fooled by his public prinouncements.

Since Carl Icahn is a successful and aggressive investor, what are some of the profitable possibilities he may have in mind for Blockbuster? For example, will they compete head-to-head with Netflix? Or, will they partner with someone else to provide a bundle of services?

Please note that Blockbuster is not unaware of digital technology.

The first 10% of takeover of Netflix is successful proxy fight for Carl Icahn. His character is obviously aggressive but he is exactly the man who I’ve been imagining “Vulture” of United States. If he scowls fiercely at target company, the company actually would go private and cease to exist from his territory.

However, in this time, his character caused the worst scenario for him. The problem of bonus for a certain manager who mainly engaged internet business brought about stagnant of main internet business and bankruptcy. The internet business was actually “Crown Jewel” to defeat Netflix. This kind of trouble had been before when he broke up with TWA. There were supposed to be a lot of candidates of “White Knight” to help Blockbuster but I guess this was an inner problem between Carl and the manager and they could’nt help them from outside.

There are some imformation that the manager who engaged internet business betrayed Carl Icahn and helped Netflix to fend off him. The one thing I want to say is these interrelationship strongly affect M&A while people are usually considering stock price and company value.

In conclusion, Netflix didnt even take poison pill because Blockbuster collapesed by themselves. However, Netflix seemed to be so scared.

 

Joint or Alliance

Assignment 8 : After reading Chapter 13 in the text, it is time to do some MBA-level thinking. Suppose you received a call from Martha Stewart. She tells you that she needs your advice. You are after all a smart MBA student. Ms. Stewart is concerned that several of her products – notably her detergent product – has received pretty negative reviews by Consumer Reports and others. She says she thought about withdrawing her name, even suing the company. But, now she is thinking it might be better to do something about the product or about how her name is used in reference to the product. Write a brief response (400 – 600 words) on the most critical Mergers and Acquisitions concept revealed in Ms. Stewart’s current situation.

I would like to highly recommend strategic alliance. There are some reasons to avoid other strategy.

First, mergers and acquisition is too expensive and she doesn’t need to buy the whole company to improve just a part of products. Actually, there would be some difficulties to improve products which is under control of other management even if it is her bland products but it seems that there is already existing strong relationship between Martha Stewart and the management regarding her name on product. It very looks like strategic alliance. However, there is also some reason she can’t control the management.

Secondly, joint venture strategy is also too costly. At this time, we are not going to develop R&D and estimate long term both company’s future cash flow and we are not going to improve distribution system or global network access. Joint venture is too big for her to improve just a part of her product even if she used to succeed in a various kind of investment as venture capitalist.

Finally, she would choose strategic alliance. This is not costly but this needs strong reliance between the relationships. I also recommend she should engage in strategic alliance position because she has a lot of experience of analyzing company’s condition. She will flow her question which is “how her name is used in reference to the product” as alliance knowledge. This is a just advice and we are not sure for this is unlawful or not. However, it will be regarded as alliance strategy from the point of view of many marketers.

However, if they refuse her proposal, she could conduct M&A such as hostile TOB. Her products and managerial methods would be Crown Jewel for the target and this is not bad idea for her to reorganize company because the target company’s revenue is actually gone down and there are some possibilities of bankrupt or liquidation. If it occurs, it would hurt her brand equity. However, the target is able to escape this M&A by separating the Crown Jewel or using poison pill. According to her carrier, M&A would be tough so I think she should insist her rights from the point of view of patent, license, copyright and so on.

 

Texas Rangers Bankruptcy

Texas Rangers Bankruptcy

 

Several years ago, the Texas Rangers (baseball team) went bankrupt. There were several competitive and contentious bids. One group won out. Imagine that you are an investor. You are going to write a letter to the Chairman of the corporation. Of course, your letter has to indicate that you are either happy or unhappy with the way things are.

 

Do some research on how the new Texas Rangers (following bankruptcy) are doing. The paper is not about how many games they win but about their financial situation. Here are a few considerations:

 

l  Are they operating in the red or the black?

l  Are the stockholders happy?

l  What are they doing wrong?

 

A few additional considerations

 

l  This is not about sports or marketing; it is about finance.

l  You are either happy or unhappy, not both at the same time.

After reviewing your draft and making necessary changes, upload it as a Word document (doc not docx) to the drop box.

 

Tom Hicks who used to operate his private equity sold Texas Rangers’ stock to Nolan Ryan who is team president. When Hicks bought the team in 1988 from a group that included former president George Bush, the market cap is $250. The market capitalization was constantly growing up. However, this year’s market cap failed from $412 in last year to $405 and then, Hick determined to sell the stock to investors due to the fact there were so many claims which suffered their management. In my opinion, investors benefit is large because the sold price is $575. However, the good price is including all debt which Rangers used to incur. The new owners of Rangers need to hedge these risk and required to know how to optimize their profit in this condition.

To keep player’s motivation is one of big issues. Alex Rodrigues is 25 million dollar creditor. Game has to be fair. Baseball shouldn’t give them other consideration such as money. This kind of bankruptcy would affect disorder of national sports world.

There were several reasons which brought about this bankruptcy. First is their mismanagement. It is that Rangers usually ignored creditor’s vote in spite of their right to join management. Second is their mismanagement of franchising. They were required to improve their past franchising process and made prepackage plan due to the fact they actually could expect their franchising failing.

 

Tax issue 2

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Tax Issues:

How could the long-term assets of a manufacturing company help the tax outlook for a hedge fund that acquires full ownership of the company? Look for real examples over the last couple of years.

In order to conduct attractive Mergers and Acquisitions, we need to expect potential tax benefits which is stemming from net operating loss carryforwards and unused tax credits. If we use tax loss carryforwards, we would estimate future value of tax. Debt finance would be required in this case. However, long-term assets companies such as manufacturing companies tend to make 10% gain of the market value in spite of tax-free transaction. This positive result must be derived from deduction of income tax and loan asset management by acquiring depreciating assets. Hedge fund usually recommends LBO because they specialized in high tax rate acquisitions which are more likely to use debt to finance a transaction. Also government support LBO in term of U.S. Treasury. So it all depends on the company’s situation or Tax Act. Their due diligence is for avoiding doubtable liability or risky collaterals. We also need to estimate amortization of goodwill and it can be deducted for tax purposes over a 15-year period. Reorganization plan also should be considered as a usage of voting stock, nonvoting stock, common stock, preferred stock and cash. If we are going to get capital gain in this asset management, this capital gain tax would be paid by common stock. However, the nature of common stock is not immediately taxed on the consideration. As a result, this tax would be deferred for this share and there are so many options to optimaze tax benefits.

 

Ethical tycoon

Assignment 10: You received a phone call that a friend of yours works for Warren Buffett. Mr. Buffett is looking to hire a sharp MBA to help him with investments. Mr. Buffett is very busy, but he told your friend he has about 10 minutes to spare for an interview. List the three most important things you plan to say to Mr. Buffett during the shoirt interview.

Here are a few tips:　Mr. Buffett is an investor. He likes to MAKE MONEY. Focus on FINANCE and try to avoid talking about “marketing plans.”　It would be good to show knowledge of his recent investments. Find out what they are and be able to tell him that they are good or bad. He may ask!　It might be good to compliment him on his ethics rather than discussing Bernie Madoff and other unethical tycoons.　Be prepared to tell him specifically what you learned in the MBA program.

Hello, Warren Buffett

I totally agree your investment style. According to acquisition of Heinz, you focused on “quality” of the target company. Value investing which is focusing on lower stock price in spite of high business performance. However, you didn’t use this investment style at this time. Growth investing is also not in this case. You used to learn inside value analysis from Graham but in this time, you actually focused on outside value such as goodwill, brand equity, profitability and stability.

While so many unethical tycoons are in this market, you are definitely ethical model of tycoons. Acquisition of Heinz has actually changed investor’s mindset because recently there were not some big deals. I mean your decision always move people’s mind and entail responsibility. He is not only ethical but also ambitious. Your behavior motivates many people and change the world.

For these reasons, you also have to act like superstar for children and properly deal with mass media such as newspaper, TV and so on. Besides, you are maximizing company’s value and dealing with investors who pursue profit. Showing off these two profiles would be so cruel and you must be strong.

 

Goldman Sachs M&A

The recommendation of Merger and Acquisition for Goldman Sachs

Yoichi Horibe

I would like to recommend Merger and Acquisition of Information System Company for Goldman Sachs. Goldman Sachs has a division of M&A advisory but it doesn’t conduct M&A itself. They have their private equity fund, GSCP (Goldman Sachs Capital Partners) and the company’s market cap is 200 billion dollar. (Although Black Stone or Carlyle group‘s market cap is almost 1000 billion so its relatively small.) In 2005, GSCP has succeeded in M&A with SunGard which is Information Technology Company and they could provide financial service too.

The one of the reason why I recommend M&A is their investment banking business is currently stronger than their trading business. After the IT bubble burst, their trading business had grown. However after the Subprime crisis, the business revenue had plunged. Now is the time to prompt investment banking business. GS is good at conducting LBO as parent company of GSCP. Besides, Rothschild family and American government is closely related to GS executives. Rothschild family is privately doing M&A advisory business and Obama supports GS. Market value doesn’t show these factors even if the value is lower than other famous private equity. The reason why Subprime crisis doesn’t affect GS is institutional investors and governors did something for GS secretary.

In conclusion, the reason why I recommend M&A of Information System Company is Information System Company has a possibility to provide financial service as well as SunGard. Within this year, Volcker role will be conducted. This rule regulates investment to hedge fund. This impact will be tremendous and last year the top of GS said “I want to divide investment banking business from our company” because of the expectation of funding without hedge fund. However, if we figure out other way of fundraising from information platform, we could raise money without hedge fund and investment banking business will be successful.