March 6, 2006
1. Based on this class, what were your two most important learning points
or ideas?
- Hiding undervaluations in mergers
- Black-Scholes option pricing and factors affecting it
- accounting for mergers
- Binomial model
- examples of real options
- real option valuation
- purchase method of accounting
2. What is the most significant question remaining in your mind from
this class?
- What happens to option valuation if it can be exercised only at terminal
date versus at any point
- Determining payout probabilities
- Valuation of synthetic options
- Decision tree, binomial tree
- What option formulas are to be used at what piont and why they are
needed
- price of an option
- mid-term exam
3. Any suggestions, and wishes for future classes?
- more examples for each formula
- more articles; apply our knowledge
- A guest speaker is a good idea; maybe do it again?
- you spend a lot of time going over material again and again
- More cases and less reading
February 27, 2006
1. Based on this class, what were your two most important learning points
or ideas?
- Binomial Option operation
- notion of call options and real options
- summary of valuing firm and equity
- terminal value and present value of a firm used in valuation
- replication of stocks
- Valuing a company based on beta
- a real option is not a business venture
- one has to unlever the previous levered beta in order to calculate
new levered beta
- cashflow discounted model
- valuation example and various red flags and how to circumvent
- solved problem that is important for assignment 2
- how to calculate growth in DCF model
- a case study of a food company
2. What is the most significant question remaining in your mind from
this class?
- how to calculate firm value using the actual financial statement
- different types of options -- option to delay, etc.
- How can debt be more expensive than equity?
- Need a more concrete understanding of option valuation models
- How everything we are learning is applied to an M&A
- What is the test going to be like?
- More on value of options
- What is the usefulness of unlevered beta -- what is it exactly? How
do we calculate it?
- Why levered beta and unlevered beta
- real options: black scholes formula and applications
- How important are options in M&A
- The details of valuing firms, such as DCF, PV of CF, discount rate,
required rate of return, levered beta, unlevered beta, etc.
- Is there a standardized way of valuing companies? What is the most
common approach?
- What are real options?
- Which rate, beta, price etc. has to be considered for valuation?
- Mid-term topics and examples
- Binomial trees
- How effective or accurate is it to use real options?
3. Any suggestions, and wishes for future classes?
- Some exercises in preparation for mid-term
- The use of practical "what if's" was great to help gain
a better understanding of course material
- Better management of time
- There is no clean flow of information. Subjects are presented and
then we jump to something else
- Do more problems in class from workbook
- How are options used in M&A decisions?
- What is a real option? Can you give an example?
- When you go over lecture slides, just point out some important points,
instead of going over every word.
- Great job
- more structure
- Giving examples was helpful but you did rush through certain parts
and did not explain all of it fully
- Please go slow in tune with the slides
- Don't put lots of stuff on screen; it's better to have in bullets
- Go over homework problems to verify the topics covered in class; some
topics were rushed at end
- We seem to be trying to cover to omuch material because the syllabus
says so; re-evaluate the syllabus.
- Please be more prepared for discussion
- more case studies
February 6, 2006
1. Based on this class, what were your two most important learning points
or ideas?
- Relative Valuation and DCF
- Method of Valuation: Relative Valuation (step-by-step)
- The overall industry's impact on specific mergers
- Review of Shapiro with Mittal example
- P/E ratio: in 1999, the analysts had to find another parameter instead
of earnings
- How to analyze strategy using Porter and Shapiro models.
- Why stock prices can rise upon a merger announcement
- Assets produce cashflows either now or in the future
- utilities are regulated because they are a natural monopoly
- Ownership/Management could affect share pricing.
- Different firms might use different strategies.
2. What is the most significant question remaining in your mind from
this class?
- Equity Valuation and Firm Valuation
- Have to prepare for presentation!
- Is Mittal going to shut down some plants?
- More detailed information on how to value mergers and the entities
involved.
- What formulas are needed to value firms when interested in M&A;
pros and cons of each valuation method
- How to arrive at discount rate for valuations
- Real optionsHow to use the Porter and Shapiro models in a merger context
- Why high P/E ratios mean high growth
- Assets could produce negative cashflow
- I dont' understand why the DCF method was used to measure the intrinsic
value of Google nowadays. It's dangerous to use this method because
it doesn't have enough history to validate it.
- The financial structure of a firm
- More explanation of DCF.
- In the real world, it's difficult to analyze the situation of a firm.
- Bargaining power of suppliers -- how suppliers decide on price.
- If DCF or relative valuation are not good techniques, why do we use
them?
3. Any suggestions, and wishes for future classes?
- I would prefer specific cases to apply our finance knowledge.
- Simpler webnotes but not the powerpoints
- Concentrate on the outline
- Please be more efficient with the time; too much time is spent toggling
between websites, Blackboard, etc instead of covering actual information.
- More organized with topics; do not jump around from topic to topic
because it becomes confusing to keep up; follow the slides or the textbook
closely.
- Discuss structure and topics for exam
- Please add structure to discussions; don't realy on webpage and posted
information.
- I feel lost in your class.
- Using one powerpoint file would give the lecture consistency
- Analyze topics based on a case study of current mergers cush as Mittal/Arcelor.
- Focus on a few topics.
- Great so far.
- Give us learning objectives ahead of each class.
- Please go slow!
- I learned very little in class today because you spent too much time
on the websites, blackboard, etc.
January 30, 2006
1. Based on this class, what were your two most important learning points
or ideas?
· Reasons for mergers, benefits and shortcomings
· Actual real-life M&A discussions
· Porter and Shapiro frameworks so I could use them to start working on
my presentation
· How to make evaluations using the two frameworks explained in class
– Porter and Shapiro models
· M&A and how it works in markets; recent M&A examples helpful
· Presentations helpful
· Different types of mergers and acquisitions
· Organic versus inorganic growth
· Winner’s curse
http://biz.yahoo.com/ms/060206/155720.html
; http://webpage.pace.edu/pviswanath/articles/aeg4e43/securities_trading/winnerscurse.html
· Types of synergy
· Evaluation of M&S – agency costs, overpayments
· What is involved in evaluating potential mergers – what can be learned
from failed mergers.
· Less presentation; more class discussion to application
· Why it should be good for the CEO to acquire large firms.
· Why does the acquirer lose out?
· Case studies; practical data and resources that support or complement
the class.
· Do mergers help management to increase value?
· Hostage situation in business and how to avoid it.
· Why mergers are good for CEOs.
· Equity is a call option on the assets of the firm.
2. What is the most significant question remaining in your mind from
this class?
· How do we value or calculate the value of joint firms?
We'll get to it when we come to synergies.
· Lack of investigation behind CEO compensations
Good question!
· How to use Porter and Shapiro models in an actual M&A deal
· How companies go about deciding to merge
· How to differentiate between lateral and conglomerate mergers
It's really not that important to pigeon-hole these things; these
distinctions are more to give you a convenient way of thinking about things.
For example, think of Asians and Europeans. Does it help to divide people
who live in that great land mass between the Atlantic and the Pacific
into Asians and Europeans? Probably, yes; most Asians share certain
characteristics with other Asians and Europeans with Europeans. However,
what about Israelis? Are they Asians or Europeans? Turks? So does it matter
that you can't answer these questions in a simple fashion? Clearly not!
· How to bring about an M&A
· The “after-deal.” How companies think and value the consequences of
an M&A.
· Are Porter’s and Shapiro’s models really applicable?
Yes; hopefully today (in the slides), you'll see more of that.
· Are there some guidelines to allow the board of directors to prevent
CEO from getting into bad mergers?
Yes; evaluate the merger using the techniques that we're discussing
in FIN 648.
· Acquirer’s value/ stock goes down, while target’s value goes up.
This is indeed a conundrum; we went over some partial answers, last
class, such as Winner's curse, hubris, CEOs who're looking out for themselves,
etc.
· How does the acquiring firm make sure that the value of the target
company in the future will be greater than the price they paid for it
today?
They need to value it today and then make sure you don't pay more
than fair value. After that, it's luck.
· The flow of information
· Could be more elaborated
· More on organic versus inorganic
· Too much stuff to read!
I wish everybody had taken FIN 647 and that we had two terms to go
over the stuff. I am trying to touch on major points and leave a lot of
the reading to you. Also, I tried to make the course more hands on, so
you'd understand the issues better.
· Why do we need mergers and acquisitions? Why can’t the two companies
simply sign a contract?
I didn't understand this question when I first read it; however,
the student clarified that what he meant was "why don't the parties just
use a contractual relationship, rather than entering into a merger/acquisition."
The answer is that sometimes it's better to do everything in the market
place (viz. contractual), sometimes it's better to things in-firm. Look
at p. 166 and exhibit 6.20 for more detail. Doing it in-firm means more
control; doing it through the market means you can walk away from the
deal (but so can the other party), and there's market discipline. Also,
think of the difference between a Soviet-style or Chinese-style economy
and a US-style economy.
· Will knowing more about mergers help us to get jobs in Finance?
I should think so; m&a is such an important part of the Finance
landscape that I can't see you getting a good job in corporate finance
without knowing something about m&a.
· Definitely have to go over the frameworks more and read about them
in the textbook.
Amen!
3. Any suggestions, and wishes for future classes?
· Concrete method of evaluating M&A
· What industry is suitable for merging/acquiring what industry
Look at the Porter model for evaluating industries; that will give
you a better idea.
· When the system is down, please provide slides in advance
· Class notes should be distributed ahead of time.
· Use of slides on the computer
· More visual aids
· Give PowerPoint presentation or some handouts; I need notes
but do not like to take notes in class.
I will try to do this in a more timely fashion.
· More concise laid out points before going on. For example, you
laid out Winner’s Curse and didn’t get back to it for another 20 minutes;
makes it hard to take notes.
I would ask you to remind me if I don't get back to an issue I mentioned
before; my lectures are live! But I will try and keep them more structured.
· Want to learn more about material that is suitable for presentation
· Continue like the first two classes – I like the approach of the Professor
to the material and excellent presentation.
· So far been great; hopefully numerical examples would help; maybe an
evaluation of an actual deal.
· More structure in the deal process for most companies
· I am looking forward to the valuation class and I really hope we
can spend more than three hours on that.
We'll see; we'll do what it takes, because valuation is, obviously,
key! Unfortunately, you'll be getting much more of this in FIN 647; we
can't do that course, here!
· More straightforward, more structured.
· Highlights of whole class and points.
· Quantitative Analysis of an M&A
We will do a lot of quantitative analysis -- however, remember, GIGO;
it's all the qualitative stuff that will make a difference.
· Clearer flow of information
· Going good
· Talk more about doing M&A deals and the process involved.
· Structure the discussion to build up to a climax – seemed sort
of back and forth at times.
This is good advice; however, I can tell you that not everybody likes
this approach -- many people want to know the question and then the answer!
· Learn how to think and evaluate mergers; more points of view and
less calculation.
I agree with you; unfortunately, there will be some quantitative
stuff that we will need to cover -- also, this is again, something that
many people are uncomfortable with; many students want to know the
way to answer a question; they want to know things where the answer is
black and white; with points of view, nothing is black and white.
· Slow down the speed
I'll try, but we have a lot of material. A better way of slowing
me down is to ask questions in class.
· More interesting examples that reflect the content of the lecture. This
really makes understanding of the concepts a lot easier.
I'll try; I am sure you'll keep me on my toes.
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