Lecture Slides - Course Basics, Housekeeping & Introduction

7/24/2019 Lecture Slides - Course Basics, Housekeeping & Introduction

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Finance 448

Entrepreneurial Family Firms,

Equity Growth and Global Corporate Restructuring

Winter 2016

Who am I?

Course Basics and Housekeeping

Introduction

Jos Mara Liberti

Global Corporate Restructuring, Winter 2016 Jos Liberti

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Who am I?

Jos Mara Liberti

From

Buenos Aires, Argentina

Education

Ph. D. in Economics, University of Chicago.

BA and MA in Economics, Universidad de San Andrs, Buenos

Aires.

Academic Experience at University of Chicago Booth

Visiting Associate Professor; 2012-2013

Cases in Financial Management



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Who am I? (cont.)

Academic Experience at London Business School

Assistant Professor of Finance;2003-2005

Advanced Corporate Finance

Finance II

Academic Experience at Kellogg School of Management

Visiting Assistant Professor of Finance; 2005-2007

Visiting Associate Professor of Finance; 2011-2015

Clinical Professor of Finance; 2016

Corporate Restructuring

Global Entrepreneurial Finance (New!)

Financial Decisions Finance I/II (Turbo)

Finance I


Who am I? (cont.)

Academic Experience at DePaul University

Assistant Professor of Finance; 2007-2012

Associate Professor of Finance; 2012-2016

Problems In Corporate Financial Policy

Special Topics In Corporate Finance Mergers & Acquisitions

Global Corporate Restructuring, Winter 2016 Jos Liberti 4


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Who am I? (cont.)

Work Experience at Citigroup/Citibank

Offices: Buenos Aires and New York

Strategic Business Planning Group; 1999-2002

Investment Banking: M&A Latin America 1995-1998

Management Associate; 1995

The Rolling Stones (fanatic), used to play rugby for the Kellogg

Rhinos (Im too old and my bones are all broken now!) and

avid soccer fan!

Bio-Information Sheet: Who are you?

Fill out the information sheet and hand it back during the firstsession. Thanks!

I have your basic Bio but would like to now why you are

taking the course!Global Corporate Restructuring, Winter 2016 Jos Liberti

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Useful forAbsolutely Everyone!

Anyone interested in working and/or dealing with ventures,

family firms and closely held firms in an international context.

Understanding the dynamics and country dimensions in terms of:

Strategy, Operations and Access to Finance

CFOs and finance professionals at non-financial companies

dealing with businesses around the world.

Even students who work on their own country may find the

course extremely useful:

Comparing and contrasting opportunities, financing contexts,

governance and legal structures across countries.

Family firms and closely held companies in a variety of roles:

Founders, shareholders or managers of their own familys firm

Non-family managers and employees, investor partners (i.e.,

financial sponsors, strategic investors and advisors of any kind).Global Corporate Restructuring, Winter 2016 Jos Liberti


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Useful forAbsolutely Everyone! (cont.)

Future senior executives that manage global financial

operations, general managers working within these firms and

the intermediaries advising or providing capital to these firms.

Bottom Line I: Beautiful course for those who want to be

challenged!

The downside is I will not cover the material from your

basic/core Corporate Finance courses.

I assume you know the basics and we will move fast.

Financial Management I and II under your belt. It is preferred

if you also have under your belt Financial Management III.

Bottom Line II: Just to be clearand set up expectations. Itis an advanced course in corporate finance.


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About The Course

Question:What can you expect?

I have very high expectations on your work.

The class (hopefully) requires a lotof work.

Seriously, the course is a lotof work, we will hopefully go over 5

cases. 4 of which are graded! How much work? This amount



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Teaching Style

Interactive, fun (hopefully!) and veryInformal:

Do not be shy about asking questions.

If you knew everything you would not be here.

Be honest with yourself about what you do/dont know.

Feel free to interrupt and share your insights/experiences.

Feel free to interrupt to share any funny thoughts.

Be nice and polite to other students be patient when they ask

questions.

Complain when you disagree with something I do/say.

I would prefer if you do notcall me Professor Liberti. Just Jos!

Cold-Calling: A lot! Preparing for class and the case isessential.

Class-grade participation each class (Out of 3).

Only one 5 to the best of the day. Do not play the guitarGlobal Corporate Restructuring, Winter 2016 Jos Liberti

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Dropbox

Course web page on Dropbox: (I do NOT use Canvas)

Announcements

Lecture Outlines

Exhibits and Case Study Questions

Case Material

Supplementary Material/Readings

Solutions to cases will only be distributed in class.

Everything will have an electronic copy except the case

solutions.

Weekly updates and announcements.

Be sure you have access to Dropbox and to be in the e-mail

distribution list:

Let me know if you are having problems accessing the system.

This is my mainsource of communication!Global Corporate Restructuring, Winter 2016 Jos Liberti


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Course Philosophy: Expectations

Very Practical Course! No chit-chat! Justify!

Using Cases and Valuation Models to understand the problem

Real World Examples

Practical Explanations

What I expect from you?

Preparation for class: we will move very quickly!

Class engagement & participation

Making up missed work

Strict application of the Honor Code

Classroom Etiquette:

Laptop Policy:I will let you know when you should bring yourlaptop to class to go over my valuation models.

If you are checking a valuation model, then I do not have any

problem, but I prefer if you are engaged in the discussion.Global Corporate Restructuring, Winter 2016 Jos Liberti

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Contact Information

Joses appointment/office hours

I am very flexible. You can either e-mail or call me

Phone: 847.467.4524

E-mail: [email protected]

In connection with class, or whatever you want to speak about,

career plans, job offers, etc.

However, I will NOTdiscuss specific aspects of a case analysis

until covered the case in class.



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Housekeeping

Please sit in the sameplace. Crucial!

We are a lot in the class! Really too many for a case-based course.

Please dont come late and turn-off your cell phones.

I hand in solutions, so do not look for them somewhere around

KSM/DP/Booth. I will realize given the quality of your write-

ups!

I willfind out and get &^%$%$#$!!!

Let me know if you think I am not doing a good job, not

clear

Im Latin, so I speak very fast and get excited with the material. Help me fix mistakes early and feel free to correct my mistakes.

Bottom Line: Dont worry too much, but WORK A LOT!


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Remarks about the Course

I will try to make the course as practicalas possible.

The course assumes you have a strongknowledge of finance.

I will try my best to keep it active and dynamic.

Case Discussion will give me that option.

There will be a minimum of lecturing.

It is very important that you come prepare for the class!

This is a case-basedcourse so a crucial part of the learning is

your preparation for each of the classes.

All the material of the course is available on Dropbox and the

case packet.

I will post lecture slides (if any) and sometimes class-casesolutions in Dropbox.



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How to Attack a Case ? For Your Future

Strategy Part:Economics of the business?

Environment? Life-cycle?

Competitors? Risks?

Key Success Factors?

Finance Part:Apply these factors to questions like:

What assumptions make sense?

What assumptions are important?

Economicsand Common Senseshould guide the numbers and

valuation:

Do numbers reflect economics?

Do numbers make sense? Reality check!

Sensitivity Analysis! How do main drivers affect the valuation?


How Did I Come Up With the Idea of theCourse?



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Three Building Blocks

The course has been designed to be at the intersection ofthree

different areas of interest including:

Entrepreneurial Finance and the Role of Private Equity.

Family and Closely-Held Firms.

Corporate Restructuring.

Emphasis on cross-border valuation and access to finance in

an international setting.

The corequestion behind GEF is:

How do entrepreneurial managers, family firms, closely-held

firms and those who finance them design and execute ventures

that effectively match opportunities and resources in aninternational context?

The course will provide with the tools necessary to value

these ventures domiciled in countries around the world.Global Corporate Restructuring, Winter 2016 Jos Liberti

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Building Block I: EF and Private Equity

Determine the optimal venture structure considering the

constraints of the national context.

Detailed understanding of the opportunity at hand and the

resources potentially available to the venture.

Action plan to bring the venture to life and to grow it domesticallyand across borders.

Contingency plans if the initial scenario for the venture does not

work out.

Explore contextual differences across countries is critical to

learning about companies in an international context.

Such differences can occur on many dimensions:

Nature of the entrepreneurial opportunity, accessibility of

resources, property rights and institutional environment andthe quality of the local legal context.



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Building Block I: EF and Private Equity

Building Block I will provide you with:

A framework for analyzing country context.

A strategy map to support the pursuit of entrepreneurial

opportunities in challenging country contexts;

A framework for describing and managing cross-border

expansion of ventures.

A framework to appreciate the challenges and opportunities of

doing business in different countries and across borders.


Building Block II: Family and Closely-Held Firms

Most companies around the world are controlled by their

founding families:

Including more than halfof all public corporations in Europe, and

more than two thirdsof those in Asia.

Even in the US, where ownership dispersion is at its highest,founding families exercise a significant degree of control over

more than half of all public corporations.

Remark: Two empirical facts motivate the study of family

firms:

Worldwide prevalence of family firms.

Uniqueness of the financial, governance and management issues.

Question:How do they/we address them?



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Building Block II will provide with:

The tools to analyze how family ownership, control, and

management affect value.

Question:What type of value?

As a controlling shareholder do you need to create value forall

stakeholders? If so, who are those stakeholders?

Minority Shareholders vs. Control Issues!

Caveat:We define family firms as those in which one or more

members of the founding family exercise significant influence

through either their:

Share Ownership, voting control, board control, and/ormanagement.

We will also include in the definition closely held firms. Why?




FAMILY FIRMS NON-FAMILY FIRMS

Owners PreferencesControl rights and cash-flow rights

Private benefits of control

Long investment and profit horizons

Cash-flow rightsNo private benefits of control

Short investment and profit horizons

Financial and Governance Issues

Trade-offs between control, liquidity and growthAgency conflicts between controlling (family) and

minority (non-family) shareholders

No such trade-offsAgency conflict between shareholders and managers

Management DecisionsInvestment decisions with long payback periods

Setting up a dual-class share structures and use of ADRs

Cutting costs to maximize short-term profits

Adopting anti-takeover provisions

Structural CharacteristicsSmaller

Lower dividend payout

Lower leverageControl rights > Cash flow rights (often?)

Less-anti takeover provisions

Larger

Higher dividend payout

Higher leverageControl rights = Cash flow rights

More anti-takeover provisions

Firm PerformanceHigher if founder is CEO or Chairman, especially with

dual class stockLower if descendant is CEO or Chairman

Lower than in founder-led firms

Higher than in descendent-led family firms


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Building Block III: Corporate Restructuring

An important aspect of todays M&A and LBO environment is

designing, implementing and executing corporate restructuring

transactions.

Identify what issues and challenges managers have to deal with

when implementing a restructuring and to ensure the goals of

the restructuring strategies are achieved.

Analyze various corporate governance structures and agency

conflicts and their implications for corporate investors and

hence market value of the firm in question.


Building Block III: Corporate Restructuring (cont.)

Design and implement going private/ leveraged buyout

transactions including being able to identify alternative sources

of capital and planning post LBO reorganization plan.

Questions: How does corporate restructuring create value?

When does it make sense for a company to restructure?

What kind of restructuring is most appropriate for dealing with a

given problem?



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Building Blocks: Bottom Line

None of the cases in this course is purely neither an

entrepreneurship or a corporate restructuring case or a pure

family business case.

Cases have been selected where the three areas of interest

intersect.

Understand incentives behind decisions.

Cases span such a variety of entrepreneurs, families, industries,

sponsors, countries, and different stages in the life-cycle of a

company.

Learn from the variance of the course and develop your own

views of the spectrum of country contexts and different

companies challenges.


What Will We Do?Course is Structured in Four Different Modules



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Global Corporate Restructuring: Topics

Module A: Valuation Methods Where Is Enterprise Value

Coming From?

Unlocking Hidden Value

Left Hand Side and Right Hand Side of the Balance Sheet.

Weighted Average Cost of Capital (WACC)

Adjusted Present Value (APV)

Discounted Cash Flows Modelling

Free Cash Flows orUnlevered Cash Flows

Capital Cash Flows orLevered Cash Flows

Equity Cash Flows orResidual Cash Flows

Relative Valuation Analysis: Transaction and Trading Multiples

Developing Break-Up Analysis and Sensitivity Tables

Caveat: We will meet in the tutorial to continue covering

concepts that we will need in the course.Global Corporate Restructuring, Winter 2016 Jos Liberti

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Global Corporate Restructuring: Topics (cont.)

Part B: Corporate Restructuring and Conflicts of Interest

Conflict of interests:

Equity vs. Debt-holders

Between Management and other Stakeholders.

Between Controlling Family and other Shareholders Fiduciary Duty Roles.

Shareholders (Delaware) vs. Corporation (Pennsylvania).

The Board of Directors and the Business Judgement Rule.

Spin-offvs. Carve-Outs.

Value creation on the LHS and RHS of the Balance Sheet.

PV(A + B) < PV(A) + PV(B). Diversification discount?

An introduction to Section 368(a) of corporate reorganization.

Tax-free reorganizations and other methods of divesture

Event Studies



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Part C: Entrepreneurial Buyouts (LBOs)

Logic and Mechanics of Entrepreneurial Buyouts

Deal Structuring of LBOs

The Role of Auctions in Buyouts

Access to Mezzanine Financing

Strategic and Financial Sponsors

Prosand Consof Different Sponsors

Sources of Values in LBOs:

Operating Engineering

Financial Engineering

Governance Engineering

Financial Modeling of LBOs:: The Iterative Process of LBOs The Problem of Changing Capital Structure

Strategic Positioning of Firms.



Part D: Family and Closely-Held Firms

Valuation of Private Companies:

Total vs. Market Beta

The Role of Controlling vs.Minority Shareholders

Private Benefits of Control

Valuing Control and Liquidity

Measuring Ownership, Voting and Control Rights

Adjusting for:

Control Premium and Minority Discount

Lack of Marketability/Illiquidity

Lack of Diversification

Partnering with Strategic and Public Investors

Impact of Dual-Class Stock on Voting Control

Voting Premium and the Value of a Vote

Diversification in Family FirmsGlobal Corporate Restructuring, Winter 2016 Jos Liberti 30


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Pre-Requisites

Understanding of basic finance theory (and more...)

If you have forgotten this, please review your notes from previous

finance classes. This is hard-work for those of you have taken

your last finance class a long time ago or those who have nottaken many of them.

Willingness to participate actively and to be well-prepared for

class.

Cases & Readings!

Be:

Curious!

Collegial!

Respectful to your classmates! No cell phones, no laptops except

when indicated.

Same place sitting policy. Crucial!Global Corporate Restructuring, Winter 2016 Jos Liberti

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Pre-Requisites (cont)

Groups should be well-balanced: Diversify! Max. 5 students!

Male/Female

Single/Married

Marketing/Finance

Lyrics/Non-Lyrics

Join a learning team to prepare for class.

Group should be eager to work and accept the challenge.

Readings for class are deep. Better to discuss them.

The analysis of the cases will get complex! You have my word

Follow your interest!

I will post lotsand lotsof supplementary readings for each topicin Dropbox. Feel free to send me articles and news you consider

relevant to the topics we are discussing in class.Global Corporate Restructuring, Winter 2016 Jos Liberti


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Commit to the Class and your Team!

Best Source: Former students who took FINC 442 or

FINC 448 or FINC 945 or FINCX 448


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Assessment Of Course Grade

Class Participation: 35%

Based bothon the quality and the number of your comments.

If you are uncomfortable with such a heavy weight on class

participation, this class may not be for you.

Group Case Write-Ups: 45%

This grade will be based on your 3 group case write-ups.

Case-write ups:

Memo style. Indicate with a number at the beginning of a

paragraph the question you are referring to.

3-page max + exhibits and attachments.

Do not do crazy things! Times New Roman, letter-size 11-

12, single-space and standard margins.

Do not free-ride! The purpose is to learn!

Peer-Review Evaluation: 20%Global Corporate Restructuring, Winter 2016 Jos Liberti


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Final Remark

Remark: Have funand learn! This is the reason why you are

here!

Any questions?


Documents

Lecture Slides - Course Basics, Housekeeping & Introduction