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Finance Simulation
M&A in
Wine Country
by Timothy A. Luehrman and W. Carl Kester
Harvard Business School
For courses in:
Finance
Mergers
and Acquisitions
Valuation
Negotiation
General
Management
Strategy
Finance Simulation: M&A in Wine Country
In this multi-player simulation, students play
the role of the management team at one of
three publicly traded wine producers: Bel Vino,
Starshine, or International Beverage. Starshine and
Bel Vino consider a merger-of-equals transaction
while International Beverage considers acquiring
either Starshine or Bel Vino. Students review
confidential information to determine value and
set reservation prices before negotiating deal
terms and accepting or rejecting final offers.
The simulation is ideal for students who have had
previous exposure to the fundamentals of finance.
Finance Simulation: M&A in Wine Country
prepare
changes to
operating
assumptions
analyze
income
statement
Bel Vino (you)
balance
sheet
Starshine
decide
WACC
based DCF
cash flow
statement
adjusted
present
value
discount
rates + TV
International Beverage
comparable
companies
comparable
transactions
ratios and
growth rates
Confidential Info
Chat
STOCK PRICE
Copy to Clipboard
OPERATING ASSUMPTIONS
Increase in Domestic Revenues ($M)
Increase in International Revenues ($M)
$42.90
Intl. Bev.:
$62.50
2.0
0.0
Reduction in Marketing Costs ($M/year)
0.0
Reduction in Other SG&A ($M/year)
1.0
PRICE PER SHARE
CALCULATIONS
Bel Vino
$43
0.0
Reduction in Inventory (in Days COGS)
30.0
Increase in Accounts Payable (in Days COGS)
15.0
Two Year Increase in Cash Spent on PP&E ($M)
$36.00
Starshine:
18.0
Reduction in Cost of Goods Sold ($M/year)
Reduction in Debt Collection Period (in Days Sales)
Bel Vino
0.0
$0
Stock
Price
WACC
APV
Analyzing changes in operating assumptions helps students understand valuation.
Identifying Opportunities
for Value Creation
Before the simulation begins, students
are assigned roles. All roles can view
publicly available information about
each company such as financial
statements and analyst projections.
hbsp.harvard.edu
Each role is also shown confidential
information about financial forecasts
and opportunities for improvement.
Using all the available information,
students consider the opportunities
for value creation and select possible
merger and acquisition targets.
Finance Simulation: M&A in Wine Country
prepare
make
decisions
share
exchange
calculator
analyze
accretion/
dilution
calculator
decide
active bids/
bid history
Chat
Target
Starshine
Acquiror
Bel Vino
Confidential Info
PER SHARE VALUATION
Starshine
$42.90
Bel Vino
$36.00
NUMBER OF SHARES CURRENTLY OUTSTANDING
Starshine
8,000,000
Bel Vino
10,000,000
MARKET VALUES OF EQUITY
Starshine
343.2
Bel Vino
360.0
Total Value of Combined Entity
703.2
Number of New Bel Vino Shares Issued
9,533,333.3
Offer 1.192 New Bel Vino Shares for Each Existing Starshine Share
Calculators help students decide the best terms for a deal.
Determining Value and
Setting Reservation Prices
Students have access to multiple
valuation models as they analyze the
on: M&A
in Wine Country
value of their own company and the
company they have targeted for a
analyze
decide
possible
deal. Changes in operating
assumptions
WACC
balance
cashare
flowimmediately
based DCF
sheet
reflected instatement
the valuation models.
Using these tools, students set
hine
International Beverage
confidential reservation prices for
each target.
The valuation models include:
WACC-based DCF
(Discounted Cash Flow) Analysis
■■
($M)
ues ($M)
■■
2.0
Key Ratios of Comparable
18.0
Companies
■■
d ($M/year)
■■
$M/year)
APV (Adjusted Present Value)
0.0
Comparable Transactions
0.0
ear)
1.0
riod (in Days Sales)
0.0
COGS)
n Days COGS)
nt on PP&E ($M)
Making and Evaluating Bids
Students begin the bidding and
negotiation process either face
to face or using the built-in “chat”
capability.
Several calculators are available to
help determine the best terms for
adjusted
discount
comparable
present
rates + TV bids. companies
making and evaluating
value
Share Exchange Calculator:
calculates the ratio of shares
exchanged in a merger
■■
Accretion/Dilution Calculator:
calculates the effect of a deal
on earnings per share (EPS)
■■
■■
everage Decision Calculator:
L
calculates financing
requirements for acquisition
Once students have negotiated the
essential terms of a deal, they enter
formal bids into the simulation.
Understanding Stock
Market Reaction
Stock prices rise and fall in reaction
to the formal bidding process and
simulate the stock market response
to potential mergers and acquisitions.
Fluctuations in share price directly
affect
the value ofratios
a proposed
comparable
and
transactions
rates
deal
and students growth
must consider
how
bidding activity affects stock prices.
Confidential Info
Chat
STOCK PRICE
Bel Vino
$36.00
Starshine:
$42.90
Intl. Bev.:
$62.50
The simulation
ends
when an offer
PRICE PER
SHARE
CALCULATIONS
is accepted.
It is also possible for
the simulation to end with no deal
Bel Vino
being reached.
$43
30.0
15.0
0.0
administration tools on next page ➜
$0
Stock
Price
WACC
APV
Administration Tools for Faculty
A comprehensive Facilitator’s
Guide covers key learning objectives,
including:
■■
class summary
game
details
scenario setup
Starshine
deal
prices
Bel Vino
deal
prices
stock
price
history
BV-SS
deals
SS-BV
deals
IB-BV
deals
IB-SS
deals
no
deals
Bel Vino
Bel Vino
Identifying
potential for value
class summary
creation in mergers and
acquisitions
BV’s reservation price of BV: $47.60
BV’s reservation price of BV: $47.60
Completed deal price $52.97
SS’s reservation price of BV: $57.53
IB’s reservation price of BV: $55.00
Analyzing and forecasting
possible synergies
Int. Bev
Starshine
0
0
Selecting target companies
Understanding the negotiation
process, outcomes, and the “zone
of possible agreement” (ZOPA)
Graphs show the “zone of possible agreement” and completed deals.
Stock Price History
MC160620610
■■
Bel Vino
zopa
Select a Team Team 1
■■
■■
team results
Starshine
zopa
70
Results are available immediately for
class review and debrief. Summary
results are provided for the entire
class and detailed results are available for individual teams. Reservation
prices, stock prices, and other metrics
are presented in easy-to-read graphs
suitable for classroom presentation.
56
42
Product #M12978
viewing simulation results
28
14
0
1
2
3
4
5
6
Bel Vino
7
8
9
10
Starshine
11
12
13
14
15
16
17
18
19
20
International Beverage
Graphs for each team show the link between stock price behavior and bidProduct #3289 | Multi-player: 3 roles | Seat Time: approximately 90 minutes | Developed in partnership with Forio Business Simulations
Preview and Free Trial Access
Visit hbsp.harvard.edu
A Preview of the simulation is available
on our web site at hbsp.harvard.edu.
A Free Trial allows full access to the
entire simulation and is available to
Premium Educators on our web site.
Premium Educator access is a free
service for faculty at degree-granting
institutions and allows access to
Educator Copies, Teaching Notes,
Free Trials, course planning tools,
and special student pricing.
Phone: 1-800-545-7685 (+1 617-783-7600 outside the U.S. and Canada)
Email: [email protected]
Web: hbsp.harvard.edu
Finance Simulation: Blackstone/Celanese
By Nabil N. El-Hage and Timothy A. Luehrman
Customer service is available 8 am to 6 pm ET, Monday through Friday
Fax: 617-783-7666
also available
This simulation recreates the landmark
acquisition of Celanese AG by the Blackstone
Group in 2003. Students take on the role of
either company and conduct due diligence,
establish deal terms, respond to bids and
counterbids, and consider the interests of
other stakeholders. #3712
Printed on recycled paper.
■■
Comparing valuation methods,
including WACC-based DCF
(Discounted Cash Flow) analysis,
APV (Adjusted Present Value)
and multiples
Finance Simulation: M&A in Wine Country