CMF Day0 SY CMF-OESY-01 Ver1 PDF

CMF-OESY-01
Ver. 1
Online Course
Finance III
(Mergers and Acquisitions)
Syllabus
Course Objectives
Needless to say, Mergers and Acquisitions play an imperative role as an option for accelerating the
business growth strategy of one’s company. In Japan, we are seeing an increase in the number of
“Triangular Mergers,” and cases of foreign-affiliates acquiring and merging with Japanese companies
are likely to continue in future. On the other hand, the number of companies who struggle with
finding a counter-action policy when they are approached for merging and acquisition and who are
not capable of keeping their heads cool (while accessing the details of the proposal and its impact on
the business as well as presenting their findings to the stock holders) is rather high.
In this course, students will get an in-depth understanding on each individual scheme for Real Option,
Project Finance, Mergers and Acquisitions and internal spin-offs by going through the material that
covers leading financial practices. This course aims to give students a comprehensive approach with
regard to how to deal with acquisition proposals as well as how to uplift their company value through
acquisitions of other businesses and internal spin-offs.
Finance III encompasses specific features and similarities between Valuation and fund-raising
students have learned in Finance I (Corporate Finance and Valuation) and Finance II (Finance
Strategy and Fund-raising). The course administrator will assume that this knowledge is acquired,
thus students should make sure that they are ready to apply what they have already learned (in
Finanace I and II).
Intended Students / Recommended Preliminary Courses

This course is designed for those who are visionary business leaders aiming to acquire basic
knowledge required for decision making on issues in the financial sector and with the business
growth strategy.
In order to optimize learning, students are recommended to have taken or be familiar with the
following related courses
— Critical Thinking
— Finance I
— Finance II
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This document is authorized for use only in Finance III (Mergers and Acquisitions) at GLOBIS from April to June 2019.
Copying, editing, and posting without permission is copyright infringement.
How to Study
Take time to thoroughly read the case that we will be considering in the next class session. Imagine
yourself as the main character of the case study, and consider “What is the problem here? What
would I do if I were the protagonist?” Use any points that you become aware of to create a specific
action plan. Don’t just think about these things—it is important that you put your thoughts and
answers down on paper. Even if you spend time thinking about ideas, it does not guarantee that you
will be able to create a logical discussion from your thoughts in class. Writing your thoughts down
also allows you to consider your logic flow and way of thinking objectively, and allows you to find
any weaknesses in your discussion.
It is often the case that students are not confident in their response, and therefore stop thinking about
it and do not write anything down. But there is no single correct answer to each case study, and we
are not looking for just one response. Rather, it is important that you assume conditions, proceed with
analysis and draw conclusions of your own.
Required Deliverables
Detailed rules for submitting assignments and report are outlined in the “Class Guide.” Read the
guide carefully to make sure you understand the rules, which could impact your final grade.
*All deliverables should be prepared in English.
1. Submitting Preparation Assignments (Days 1–6, 9–12)

You are required to turn in Preparation Assignments for Days 1-6 and 9-12. Preparation
Assignments should be approximately one to two pages in length. Study and review all of the
exercises even when they do not need to be submitted as a Preparation Assignment. The deadline
for Preparation Assignments is THIRTY MINUTES after the class starting time.
As outlined in the Class Guide, Preparation Assignments should be uploaded as PDF files via the
Virtual Campus.
Preparation Assignments will only be accepted from students who have attended class and
uploaded the assignment in the designated way. If students are absent, the assignment will be
marked as “Not Submitted.” Note that an assignment may not be accepted if it is judged to be
incomplete.
 How to Complete a Preparation Assignment

(1) Write your opinions and come to your own conclusion
The most important point in completing assignments is to develop and explain your own
opinions which should be thought through thoroughly and lead you to make your own
conclusion. Merely summarizing cases, methods or frameworks is not sufficient.
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(2) Explain your thoughts clearly and concisely
Take note of the following points to make your assignment more persuasive:
A) Analyze the case and explain the facts that support your conclusion
B) Use methods and frameworks for analysis and strategy planning
C) Convey your thoughts logically and clearly
D) Consider who your audience is and try to make your explanation easy to understand
2. Submitting a Report (Day 7)

A report is required for Day 7. The deadline is THIRTY MINUTES after the class starting
time.
Reports should be uploaded in the designated way as PDF files via the Virtual Campus.
Note that when attending a substitute class in the same term for Day 7, you are required to
submit the report by the specified deadline of whichever class comes first, either the registered
class or the substitute class.
Be sure to submit your report on time. Late submissions will not be accepted and your report
evaluation will be marked as “Not submitted.” In such a case, you will be neither evaluated nor
given feedback from the lecturer, and your grade will be marked as “Ineligible for grading.”
Note: Measures against cheating and plagiarism

When writing a report, it is strictly forbidden to copy or use ideas from others’ reports, handouts
from other courses, materials from past terms and/or analyses shared during study sessions.
Students should refrain from sharing solutions for report subjects including quantitative analyses
(especially in an Excel format) and all other information that could impact the outcome of
reports through the Class Discussion Board or any other forms of communication. Both the
provider and beneficiary of relevant information shall become disqualified from completing the
course in case of such cheating and plagiarism.
 How to Write a Report

(1) Write your opinions and come to your own conclusion
The most important point in completing a report is to develop and explain your own opinions
which should be thought through thoroughly and lead you to make your own conclusion. Merely
summarizing cases, methods or frameworks is not sufficient.
(2) Explain your thoughts clearly and concisely

Take note of the following points to make your report more persuasive.
A) Analyze the case and explain the facts that support your conclusion
B) Use methods and frameworks for analysis and strategy planning
C) Convey your thoughts logically and clearly
D) Consider who your audience is and try to make your explanation easy to understand
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(3) Use simple and clear expressions
If you want readers to understand your thoughts or proposals, first of all, you need to make them
easy to read and understand. Clarify facts and organize your ideas using simple and clear
expressions. The evaluation of your report will be based NOT on the length but on the content
and organization. If you use any charts in your report, clarify and explain what information those
can tell readers.
3. Submitting a Review Assignment (Day 12)

You are required to turn in a Review Assignment on Day 12, both to communicate what you
have learned and to help deepen your learning in a practical way. Review Assignments should be
one to two pages in length and uploaded as PDF files via the Virtual Campus. The deadline for
Review Assignment is THIRTY MINUTES after the class starting time.
The Review Assignment will only be accepted from students who have attended the class and
uploaded the Review Assignment in the designated way. If students are absent, the Review
Assignment will be marked as “Not Submitted.” Note that the Review Assignment may not be
accepted if it is judged to be incomplete. The Review Assignment must be uploaded separately
from Preparation Assignment.
Submit your thoughts on the points below:
(1) What you learned in class

What was the most important learning point for you during the entire course? Be as specific as
possible.
(2) The learning points that you can apply to your job
What was the most important learning point that you can directly apply to your job? Be as
specific as possible.
(3) How you plan to continue applying what you have learned
What actions do you intend to take to enhance what you have learned during this course?
Grading
 Grade
Students will be evaluated based on the sum of all points granted, and graded on a scale of A to
D, and F; A (Excellent), B (Good), C (Satisfactory), D (Unsatisfactory pass) and F (Fail). The
class distribution of the 5 grades will be based on a curve, relative to the total number of
students who are eligible for grading. The standard grading curve is as follows: A (15%), B
(35%), C (40%) and D/F (10%).
In case students fail to meet the requirements for grading, the grade will be marked as “Ineligible
for grading.”
If students are not present for at least two-thirds of a class session, they will be marked absent.
For a 90-minute class, this means that if students are more than 30 minutes late, leave more than
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30 minutes early, or otherwise miss more than two-thirds of a class due to any reason, including
connection trouble, they will not receive credit for that class. Additionally, if overall tardiness is
excessive, lecturers may also deduct points when completing the final grade.
 Final Evaluation
The final evaluation will be determined based on your grade:
A, B, C, D: Completed
F/Ineligible for grading: Not Completed
 Requirements for Grading

・ Attendance of at least 8 out of 12 classes within the registered period
・ Submission of a report by the given deadline
 Grading Criteria
・ Comprehension of the course concepts
・ Overall contribution to the class discussions
Grades are finalized by taking into account the sum of all points granted for the following items.
(1) Assignments <Preparation Assignment 1 pt × 10 classes + Review Assignment 6 pts × 1 class

= 16 pts total>
Preparation Assignments are worth 1 point and Review Assignments are worth 6 points upon
submission and acceptance by the lecturer.
(2) Class discussions <12 classes = 96 pts total>

The statements you make during each class will be graded from both qualitative and quantitative
perspectives, for the purpose of assessing your contribution to the class.
Quality E (Excellent): 5 pts, G (Good): 3 pts, None: 0 pt
Quantity E (Excellent): 3 pts, G (Good): 2 pts, None: 0 pt
(3) Report <10 pts maximum × 8 = 80 pts total>

The quality of the report is evaluated by taking into account the following factors: analytical
ability and insight, reasoning skills, ability to develop and evaluate hypotheses and
comprehension of business frameworks. A maximum of 10 points will be granted as the raw
score, which will be multiplied by 8 to become the final report score.
Textbook
Please purchase the following textbook before the course starts:
・ Richard Brealey and Stewart Myers and Franklin Allen, 2017. Principles of Corporate Finance.
12th ed. Global ed. McGraw-Hill Education.
(https://www.mheducation.com/highered/product/principles-corporate-finance-brealey-myers/M
1259144380.toc.html )
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Background Material
Read the following material carefully, which is included in the package.
・ Notes on Corporate Valuation Methods
References
For those who want to develop a deeper understanding, the references listed below are recommended.
・ Robert Higgins, 2019. Analysis for Financial Management.12th ed. McGraw-Hill Education.
(https://www.mheducation.com/highered/product/analysis-financial-management-higgins/M1259
918963.html )
・ McKinsey & Company Inc. , Tim Koller, Marc Goedhart, David Wessels, 2015. Valuation:
measuring and managing the values of companies. 6th ed. Wiley.
(https://www.wiley.com/en-us/Valuation%3A+Measuring+and+Managing+the+Value+of+Comp
anies%2C+6th+Edition-p-9781118873700 )
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Day 1
<Theme>
Real Option
In Day 1, the students will learn one of the core concepts in the modern finance theory, the Real
Option, which has been widely applied in today’s society. Students need to comprehend the
possible benefits they can obtain by combining this concept with the Discounted Cash Flow
Analysis (DCF) which is frequently used in capital budgeting and project evaluation. Also they
understand what conditions need to be met, when we apply the concept in the real business
situations.
<Main Reading>
 Aqua Bounty
<Side Reading>
 Real Options: A Practical Approach
<Textbook>
 Principles of Corporate Finance
— Chapter 20: Understanding Options
— Chapter 21: Valuing Options
— Chapter 22: Real Options
<Worksheet>
 [Worksheet] Aqua Bounty : The Real Option
*You can download the worksheet from the Virtual Campus for your own use.
<Exercises>
1. What are the fundamental similarities and differences between the conventional DCF method
and the real option approach ?
(Continued on the next page)
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2. Assess value of the AquAdvantage project, using the preparatory worksheet provided.
Assume following conditions for your analysis :
・ Aqua Bounty will incur costs of ￡2.5m per year for the first 3 years (staring from 2006)
to obtain approval from FDA
・ Given the FDA approval is obtained, Aqua Bounty believes that there is an equal chance
of each of the 3 commercialization scenarios occurring. Under the “low” scenario,
revenues would be 75% lower than that under the “baseline” ; under the “high” scenario,
revenues would be 75% higher
・ In all 3 scenarios, COGS will be 20% of revenues, and annual SG&A costs of ￡4m plus
5% of revenues will be incurred
・ Product commercialization costs would be the same in all the 3 scenarios, as shown in
case Exhibit 5
・ Any losses can be carried forward to offset the taxable income for 20 years at maximum
・ Cost of capital of 14%
<Preparation Assignment>
Submit your analysis for Exercise 1 as well as a completed worksheet for Exercise 2 via the Virtual
Campus.
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Day 2
<Theme>
Real Option (Continued)
In Day 2, the students will learn one of the core concepts in the modern finance theory, the Real
Option, which has been widely applied in today’s society. Students need to comprehend the
possible benefits they can obtain by combining this concept with the Discounted Cash Flow
Analysis (DCF) which is frequently used in capital budgeting and project evaluation. Also they
understand what conditions need to be met, when we apply the concept in the real business
situations.
<Main Reading>
 Aqua Bounty
<Side Reading>
 Real Options: A Practical Approach
<Textbook>
— Chapter 20: Understanding Options
— Chapter 21: Valuing Options
— Chapter 22: Real Options
<Exercise>
1. What kind of condition is necessary to make full use of a Real Option Valuation for an
investment business evaluation?
Submit your analysis for Exercise 1 via the Virtual Campus.
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Day 3
<Theme>
Project Finance
Students will study Project Finance, the topic regarded as a representative of Structured Finance.
Students will get an in-depth understanding of topics such as scheme features, its merits and risks,
prerequisites for establishing a scheme, and they will also examine whether Project Finance needs
to be kept separate from the operational Corporate Finance or not.
<Main Reading>
 BP Amoco (B) : Financing Development of the Caspian Oil Fields
<Side Reading>
 BP Amoco (A) : Policy Statement on the Use of Project Finance
<Textbook>
— Chapter 24: The Many Different Kinds of Debt
<Exercises>
1. What are the similarities and differences between the Project Finance and corporate finance?
What is the need behind this type of scheme?
2. Create a list indecating merits and demerits / risks associated with the project finance scheme
from the perspectives of sponsors and lenders respectively.
3. Assess what are the selling points of this AIOC project looking from the cash-flow perspective
(Project Finance scheme is regarded as a part of the corprate finance). Make sure to simulate
the terms and conditions yourself (i,e. discount rate) when doing the analysis.
Submit your answers for Exercises 2 and 3 via the Virtual Campus.
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Day 4
<Theme>
Project Finance (Continued)
Students will study Project Finance, the topic regarded as a representative of Structured Finance.
Students will get an in-depth understanding of topics such as scheme features, its merits and risks,
prerequisites for establishing a scheme, and they will also examine whether Project Finance needs
to be kept separate from the operational Corporate Finance or not.
<Main Reading>
 BP Amoco (B) : Financing Development of the Caspian Oil Fields
<Side Reading>
 BP Amoco (A) : Policy Statement on the Use of Project Finance
<Textbook>
— Chapter 24: The Many Different Kinds of Debt
<Exercises>
1. Do you belive that BP Amoco should prepay to the loan for “Early Oil Project” and why?
2. Should BP Amoco use project finance, corporate finance, or a combination of the two to fund
its share of the Full Field Development Project? Why?
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Day 5
<Theme>
Leveraged Buyout
This case illustrates a leveraged buyout and highlights some of its value-creating aspects. Students
are invited to consider how changes in (1) capital structure, (2) tax basis of assets, and (3)
managerial incentives all work together to substantially alter the value of a business.
<Main Reading>
 Congoleum Corporation (Abridged)
<Textbook>
— Chapter 19: Financing and Valuation
— Chapter 31: Mergers
— Chapter 32: Corporate Restructuring
<Exercises>
1. What characterstics of Congoleum make it a likely candidate for a leveraged buyout?
2. Where will the value for the 50% acquisition premium come from in the proposed buyout?
Identify sources of the value and conduct a quantitative analysis for them. In light of its
analysis result, is $38 per share First Boston offers for acquiring Congoleum fair?
Submit your answer for Exercise 2 via the Virtual Campus.
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Day 6
<Theme>
Leveraged Buyout (Continued)
This case illustrates a leveraged buyout and highlights some of its value-creating aspects. Students
are invited to consider how changes in (1) capital structure, (2) tax basis of assets, and (3)
managerial incentives all work together to substantially alter the value of a business.
<Main Reading>
 Congoleum Corporation (Abridged)
<Textbook>
— Chapter 19: Financing and Valuation
<Exercises>
1. Compare the enterprise value of Congoleum under the proposed buyout scheme and that under
the current status, analyzing the free cash flows for both scenarios.
2. As the management of Congoleum do you accept the offer? Why or why not ?
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Day 7
<Theme>
Mergers and Acquisitions
Day 4 is a continuation of Day 3 and it specifically focuses on the Merger and Acquisition topic.
Students will examine how an executive should respond to and deal with a merger and acquisition
proposal. Furthermore, they will learn how to examine the stock price (actual price shifts of the
stock held by the acquisition-party and the taken-over party) and how investors and the market as a
whole perceive these mergers and acquisitions proposals.
<Main Reading>
 Philip Morris Companies and Kraft, Inc.
<Textbook>
<Exercises>
1. How did the stock market assess Philip Morris’s $90 per share bid for Kraft?
2. What is the value to shareholders of the restructuring proposed by Kraft?
3. Does the Kraft’s financial restructuring proposal really bring value to the shareholders as Kraft
announced? Look at it from both quantitative and qualitative angles. Please use the following
information volumetrics for your quantitative analysis.
1) — Risk-free Rate: 9%
2) — Market-risk Premium: 8%
4. Evaluate Philip Moris’s acquisition proposal and Kraft’s financial restructuring proposal from
different angles, decide on your position and draw you conclusions on pros and cons given in
both proposals.
(Continued on the next page)
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<Report>
On Day 7, a report is required for the above Exercises 1 to 4.
*Note that when attending a substitute class in the same term for Day 7, you are required to submit
the report by the specified deadline of whichever class comes first, either the registered class or
the substitute class. Your report is to be graded by the lecturer of your registered class.
*Please be sure to consult “Submitting a Report (Day 7)” on pages 3 and 4 as well as the “Class
Guide” for other points to note regarding reports. Also, pay attention to any additional
instructions given by the lecturer.
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Day 8
<Theme>
Mergers and Acquisitions (Continued)
Day 4 is a continuation of Day 3 and it specifically focuses on the Merger and Acquisition topic.
Students will examine how an executive should respond to and deal with a merger and acquisition
proposal. Furthermore, they will learn how to examine the stock price (actual price shifts of the
stock held by the acquisition-party and the taken-over party) and how investors and the market as a
whole perceive these mergers and acquisitions proposals.
<Main Reading>
 Philip Morris Companies and Kraft, Inc.
<Textbook>
<Exercises>
Give some further consideration to the exercises of Day 7.
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Day 9
<Theme>
Internal Spin-offs
Students will learn how to spin-off of a business unit with an aim to realize the potential (value)
that a company has. Students will look at different and broad approaches when assessing
(quantitative analysis) the value of a business unit and they will learn the best way to execute it and
the reasoning behind it. Furthermore, students will get an in-depth knowledge on specific options
that are available when about to sell-off a business unit.
<Main Reading>
 AMTELECOM GROUP INC.
<Textbook>
32-2 Fusion and Fission in Corporate Finance
<Worksheet>
 [Worksheet] AMTELECOM GROUP INC.
*You can download the worksheet from the Virtual Campus for your own use.
<Exercises>
1. Size up the communications industry and identify key success factors. Size up the strengths
and weaknesses of Amtelecom Communications.
2. Is Amtelecom Group Inc. really trading at a discount? If so, why is that? Try to answer it
quantitatively by calculating the values of 2 business units respectively.
3. Do you agree with AGI’s decision to break up the company? How about selling off the
communications business rather than the courier business?
4. Assess the value of Amtelecom Communications using all available valuation methods. Which
valuation method is most appropriate for each sales alternative? What are the expected net
proceeds for each alternative?
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Day 10
<Theme>
Internal Spin-offs (Continued)
Students will learn how to spin-off of a business unit with an aim to realize the potential (value)
that a company has. Students will look at different and broad approaches when assessing
(quantitative analysis) the value of a business unit and they will learn the best way to execute it and
the reasoning behind it. Furthermore, students will get an in-depth knowledge on specific options
that are available when about to sell-off a business unit.
<Main Reading>
 AMTELECOM GROUP INC.
<Textbook>
32-2 Fusion and Fission in Corporate Finance
<Exercises>
1. As Stanley Stewart, what sales proposal would you recommend? How would you pitch it to
the board?
Submit your answers for Exercises 1 via the Virtual Campus.
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Day 11
<Theme>
Mergers & Acquisitions
In the Day 11 class, students will look at a merger and acquisition case and use a holistic approach
to look at the validity of a business acquisition, importance of aligning one’s competitive
superiority with the acquisition strategy, different methods of assessing the business value, and
other additional points to keep in mind when making an acquisition.
<Main Reading>
 Crown Cork & Seal / CarnaudMetalbox
<Textbook>
<Exercises>
1. Should Crown try to extend its global reach by acquiring CMB? What are the
advantages/disadvantages of being a global seller? A Global buyer?
2. Why did Crown choose to acquire CMB? If Crown is looking for a synergy with the
acquisition of CMB, what would that synergy be? Please examine this case while keeping in
mind the strenghts and wekaness of Crown?
3. What is the maximum price / share Crown should offer to acquire all of CMB’s common
stock?
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Day 12
<Theme>
Mergers & Acquisitions (Continued)
In the Day 12 class, students will look at a merger and acquisition case and use a holistic approach
to look at the validity of a business acquisition, importance of aligning one’s competitive
superiority with the acquisition strategy, different methods of assessing the business value, and
other additional points to keep in mind when making an acquisition.
<Main Reading>
 Crown Cork & Seal / CarnaudMetalbox
<Textbook>
<Exercises>
1. What proportion of cash versus stock do you hope to achieve as Crown’s management? How
might you induce CMB’s shareholders to tilt their willingness to accept stock or cash in the
poportions you hope to achieve?
Submit your answers for Exercises 1via the Virtual Campus.
<Review Assignment>
Submit your Review Assignment via the Virtual Campus. Refer to the notes under “Submitting a
Review Assignment (Day 12)” on page 4.
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CMF-OESY-01

Intended Students / Recommended Preliminary Courses

1. Submitting Preparation Assignments (Days 1–6, 9–12)

 How to Complete a Preparation Assignment

2. Submitting a Report (Day 7)

Note: Measures against cheating and plagiarism

 How to Write a Report

(2) Explain your thoughts clearly and concisely

3. Submitting a Review Assignment (Day 12)

Submit your thoughts on the points below:

(1) What you learned in class

 Requirements for Grading

(1) Assignments <Preparation Assignment 1 pt × 10 classes + Review Assignment 6 pts × 1 class

(2) Class discussions <12 classes = 96 pts total>

(3) Report <10 pts maximum × 8 = 80 pts total>

・ Notes on Corporate Valuation Methods

(Continued on the next page)

2. What is the value to shareholders of the restructuring proposed by Kraft?

(Continued on the next page)

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