Corporate Finance (extraordinary transactions and business valuation)

Course Leader: Dr Jose Gerardo De La Vega Meneses

Home Institution: UPAEP University, Puebla, Mexico

Course pre-requisites: None.

Course Overview
This course on Corporate Finance is designed to provide an insight into the principles and techniques that are fundamental to corporate finance. The course will provide a broad overview of corporate finance and discuss the important concepts that are required for valuing assets and projects such as time value of money and various tools that are commonly used to evaluate investment decisions. While most of the discussion will be in the context of investment decisions for firms, we will also examine applications of these principles to personal financial decisions. 

Learning Outcomes
Obtain a broad functional knowledge of basic theory and practice of finance.

Access and analyze financial statements to evaluate the financial health of the firm and the strategies it employs to create value for its shareholders.

Develop and apply financial modeling skills for the valuation of the firm and of individual capital assets, securities, and other investment vehicles.

Through experiential learning, apply principles of asset allocation and diversification to formulate portfolio strategies.

Understand and apply various measures to evaluate portfolio performance.

Demonstrate effective skills in written and oral communication, and in teamwork.

Course Content

Business valuation.

-The free cash flow valuation.

-The equity premium and the cost of capital.

-The use of multiples in valuation.

-The valuation with a changing capital structure.

The capacity for indebtedness in financing acquisitions.

-The valuation of entry/exit options.

-Valuation in mergers and acquisitions.

-Valuations in M&A transactions with differences of opinions between participants.

-Special structures: price guarantees and collars.

-Valuation in leveraged buyouts.

Extraordinary transactions.

-Types of extraordinary transactions (M&A): mergers and acquisitions (through the outright purchase of shares or the pooling of interests).

-Vertical and horizontal integration; integration of at a conglomerate level.

-Legal restrictions on acquisitions.

-Friendly and hostile acquisitions; the defences against hostile takeovers.

-Acquisitions involving the stock exchange and acquisitions outside of the stock exchange: public purchase offers and public offers for the exchange of shares.

-Equity price movements at the time of offers for publicly traded securities and investor behaviour.

-Accounting and tax aspects.

-Leveraged Buy-Outs, Management Buy-Outs, Going Private. -Divestiture transactions.

-Reasons for acquisitions: creation and destruction of value through extraordinary transactions; possibilities for transferring wealth.

-Empirical evidence about the results of extraordinary transactions. Analysis of actual M&A cases. Innovative financing for development: mini-bond and social impact bond.

Initial public offerings (IPO).

-The reasons why businesses seek capital from the market: from the firm's perspective; from the shareholders' perspective.

-Overview of competitive structure of the exchange industry with regard to the equity markets.

-Market access: alternative trading venues (regulated markets, multilateral trading facilities, systematic internalisers); the function of listing the securities exchanges; international perspective: the shopping of jurisdictions for incorporation and of markets for a listing; the segmentation of the Borsa Italiana and London Stock Exchange markets; Italian regulations on market access.

-Listing and corporate governance: the listing as a mechanism to separate ownership and control.

-Institutional investors and shareholder activism.

-Economics of the primary market: the system of incentives for intermediaries involved in placement and the phenomenon of underpricing; analysis of the economic reasons underlying offering techniques: fixed price versus open price; winner’s curse approach; bookbuilding versus auction; allotment; and greenshoe.

-The IPO process from the intermediary's point of view: pitch and mandate; pricing process; the definition of the structure of the offering (public sale offer versus public exchange offer); the offering memorandum; the creation of consortia; roadshows and offerings; the economics of the transaction (commissions). Financial analysts and IPOs: the activity of financial analysts; models used for valuation and sources of data; conflicts of interest in equity research activity; regulation.

-Analysis of an IPO case.

Instructional Method

The course will be taught through lectures. Considering the use of the textbook, and the fact that the lecture notes are closely related to other materials to be consulted, regular class attendance is highly recommended. There are several assigned activities in this course: essays, homework, exams, and class participation.

Required Course Materials

Required Texts:

ARZAC, Valuation for mergers, buyouts, and restructuring, John Wiley & Sons, 2005 (Chapters and sections indicated in class).

Lecture notes, reading references, and support materials will be indicated periodically in class.

It should be noted that most of the reading material is in the English language.

Basel Committee on Banking Supervision. (2013). Consultative Document: Fundamental review of the trading book: A revised market risk framework. (Basel, Switzerland: Bank for International Settlements).

Bodie, Z., Kane, A., Marcus, A. J., & Jain, R. (2014). Asset Classes and Financial Instruments. In Investments(pp. 32–60). McGraw–Hill Education, Asia Global Edition.

Clements A. E., Hurn A. S., & Volkov V. V.(2015). Volatility transmission in global financial markets. Journal of Empirical Finance, 32, 3–18.

 Jorion, P. (2006). Value at risk: The new benchmark for controlling market risk. Chicago: IRWIN.

Recommended Text:

Corporate Finance, 13th edition (2018), Ross, Westerfield, Jaffe.

Assessment

Assessment / Deliverable:

Individual or group:

% of final grade:

daily quizzes/Problem Based Learning

Individually

50%

Exams

Individually

10%

Team discussion of business cases

In Groups

10%

Final written exam structured in three open-ended questions with exercises to be solved

Individually

20%

Class participation/assistance

Individually/in groups

10%