INDIAN SCHOOL OF BUSINESS

GOING PUBLIC AND GOING PRIVATE (GPGP)

Term 7, 2023-2024
__________________________________________________________________________

Instructors
Sudip Gupta
Affiliation: The Johns Hopkins University Carey Business School
Contact: [email protected]

Nagpurnanand Prabhala
Affiliation: The Johns Hopkins University Carey Business School
Contact: [email protected]

Office hours: By appointment

Overview
This is an advanced course in corporate finance, focusing on the interface of firms with
financial markets. We will emphasize the form and financing of the firm. Pedagogy is
principally through cases. The course will examine the capital raising and financing strategies
of private and public firms. On most occasions, we take the perspective of the firm responsible
for the financing activity. However, we will often look at the same transaction from the
complementary viewpoints of the participating financial intermediary such as a venture
capitalist, an investment bank, or an investor in the issuing firm. We cover a wide range of
capital market transactions ranging from simple to complex instruments by private and
publicly listed firms. For private firms, we focus on the motivation, structuring and valuation
issues involved in the important financing avenue of venture capital.

The intended audience for this course includes not only aspirants to careers in investment
banking or leadership roles in corporate finance but also those interested in consulting careers.
Students intending to manage family businesses and budding entrepreneurs find the course useful
as they go through the life cycles of the businesses they run. A particular feature of the course is
exposure to a variety of industries and decision-making contexts.

Group formation
Class participants will be organized into groups of a minimum of four and at the most five
students. Please ensure within-group diversity to maximize learning. Group composition may
not be altered during the term. Groups will NOT be formed across sections.
Learning goals
There are three learning objectives:

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 i. Critical and integrative thinking ii.
Effective oral communication
iii. Interpersonal awareness and working in teams

The first learning objective is critical and integrative thinking. In each case, you will put
yourselves in the shoes of a decision maker facing an issue that requires making an important
decision. You will develop the ability to distil the major issues, develop alternative strategies to
deal with them, and evaluate each alternative in a coherent manner. Putting yourself in the shoes
of a decision-maker is the best way to understand finance theory and apply it. What is the
difference between theory and its application? Theories are important as they provide us useful
insights and ways of thinking about problems. Thus, theoretical rigor underpins virtually every
case in some way or another. However, the challenge is to use theory to generate insights useful
for practical decision-making – rather than treat it as a constraint that limits your thinking. In
keeping with this philosophy, we will focus class time on theory in live action. We will focus on
analyzing specific decisions faced by firms and the application of theoretical concepts rather than
on understanding textbook theories themselves.

In most cases, there is rarely one “correct” answer and even if an obvious one suggests itself,
the required inputs are usually unavailable. There are no right answers but only good or bad
ways of thinking about problems. Thus, tackling cases will involve understanding some
conceptual material, working through some number crunching and doing intelligent
guesswork. Different elements are less or more important in different cases.

The second learning objective is effective oral communication. Sometimes we will ask entire
groups to take stands on such questions as the valuation of a firm or its right financial strategy.
At other times, individual students will be asked to do the same. Students can expect a healthy
mix of all these approaches. Questions and discussion are encouraged throughout the class.

Class preparation and participation are an absolute must. Cases should be briefly discussed in
groups before a class, and every student must come prepared to open a discussion. Just as
important is the ability to listen and assimilate the discussion. You will discover that much of
the learning of the case occurs by listening to your peers in class.

The third learning goal is the development of interpersonal awareness and the ability to work in
groups. You are required to work on the cases as a group. This is because no single individual
has the perspective or the breadth of knowledge and experience that is necessary to explore all
the issues. You will discover that the case analysis will typically require considering and
accounting for the opinions of every group member. In every case, there will be strong views on
the many sides of an issue. You, as a group, will have to form a coherent consensus from these
diverse opinions.

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Course conduct
Students will be expected to be prepared for all classes. This includes having read the
readings and being prepared to answer questions/participate in discussions. Students should
be in class on time, not leave the class during the session, and not be engaged in any other
activity unrelated to the course during class time.

The only way to learn is to be prepared for classes by reading the material before each class.
It is useful to ask questions and actively participate in class. Students should also make use of
instructor office hours.

Grading
This course has the following deliverables related to the learning objectives.
30% - Case write-ups
Each group must turn in write-ups for up to four assigned cases. We will count the best three for
grading. Each write up must be submitted as a single .pdf file that includes up to two pages of
written analysis plus any exhibits you deem necessary. Each exhibit submitted must be referenced
in the text and should be neatly formatted, converted into .pdf, and attached to the main file so
that the deliverable remains a single .pdf file. No Microsoft Word or EXCEL submissions please.

The write-ups should be professional, addressed to the CEO/CFO as an internal or consulting

report. This means you must be precise and comprehensive. The write-ups should be no longer
than two pages (Times New Roman 12 font size with 1.5 line spacing, please!).

In your write-ups, do not re-invent the wheel. No detailed background is needed in the writeup.
A few lines summarizing the background and decision on hand suffice. Exercise judgment on
what is necessary to make the write-up coherent. Take a clear stand on the central case problem
and provide a recommended course of action

Turn in the write-ups at or before 11:59 PM Sunday after the case is discussed in class in that
corresponding week. The post- class submission requirement is intended for you to take what
was discussed in class and fill in any blanks.

The case write-ups will assess the critical and integrative thinking objective of the course. The
coding scheme for case submissions is 3N-a.

15% - Participation
This will be judged by attendance, whether you speak up, and whether what is spoken
contributes meaningfully to the discussion. Marks will be subject to the discretion and
judgment of the instructor.

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10% -- Peer evaluations
Towards the end of the semester, each student will evaluate every other group member
individually. Use participation and attendance in group meetings, contribution to group
preparation, write-ups, and the overall rating as a team player as criteria to grant these grades.
Peer evaluations assess how the student can work in teams.

10% Pop Quizzes in Class

In some classes TBD at random, we will have 4-6 pop quizzes in which you will be asked to
respond to questions on class material in class. The questions will be multiple choice or short
answer and based on the material done in the class. The quizzes will be very short. The time
allotted for these quizzes will be 5 minutes. We will count the best n out of n+1 quizzes. The
quizzes will typically be administered through the LMS or on paper.

35% - Final exam

The final exam needs to be answered and submitted individually. The exam will last 2 hours.
You may consult the textbook and notes but no consultation with other individuals is permitted.
Using EXCEL or a basic calculator for computations is fine but anything else (chatbots and
their new incarnations in the form of generative AI) is subject to ISB policies. Whatever
sources you use need to be cited. A failure to cite is regarded seriously as plagiarism or copying
and can attract very severe penalties. The exact dates and other details will be communicated
closer to the final date.

Like the case write-ups, the final exam will also assess for critical and integrative thinking. The
coding scheme for the final exam is 4N.

For all submissions, whether cases or final exam, late submission is not allowed under
any circumstances, barring personal emergencies etc.

Honour code
The coding scheme may be accessed at all times at:
https://isbhydmoh.sharepoint.com/sites/atrium/Programmes/PGP/ASA-PGP-
202324/StudentManual2023-24/Pages/ISB%20Honour%20Code-2023-
24/Coding_Scheme_202324.aspx

Attendance policy
We will strictly follow the ISB guidelines for attendance. The current policy is reproduced below
for your convenience, but the students are expected to be aware of and keep track of the
institution’s policies as amended from time to time.

Learning is an interactive process. ISB students are admitted partly based on the experiences
they bring to the learning community and what they can add to class discussions. Therefore,

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 attendance is an important aspect of studying here. Absence is only appropriate in cases of
extreme personal illness or injury leading to hospitalization, bereavement within the immediate
family. Even in situations such as hospitalization or bereavement within the family, the excuse
provided, if any, will only be limited to class attendance and not for any other components of
the course. Please note that voluntary activities such as job interviews, business school
competitions, travel plans, joyous family occasions, etc., are not valid reasons for missing a
class.

You are required to attend the entire 2-hour class as per the schedule. Late arrival and early
departure are disruptive to the learning environment; you should be present in class before the
scheduled start time and stay till the conclusion of class.

Requests for excuse of attendance, if any, should be forwarded to the Office of Academic and
Student Affairs (ASA) – [email protected] (for Hyderabad) and
[email protected] (for Mohali) for approval. The ASA team will verify the
same and in turn keep the Faculty and Academic Associate/s informed of the same.

The ISB expects students to attend all class sessions in every course section. Attendance will be
marked and recorded on LMS. However, if due to completely unavoidable reasons a student is
forced to miss a session, the school policy is below:
• If a student misses 20% of sessions in a course; there will be no grade penalty.
• If a student misses 30% of sessions in a course, s/he will obtain a letter grade lower than
that awarded by the faculty for that course.
• If a student misses 40% of sessions in a course, the student will receive a letter grade that
is two levels lower.
• If a student misses more than 40% of sessions in a course, the student will receive an 'F'
grade for that course.

Other Notes
• For half credit courses, 30% may not be applicable given it will equate to one and a half
sessions. In addition, please note that part attendance in the class (e.g., attending only one
of the two hours) will be treated as an absence. Extenuating circumstances may
sometimes be considered per ISB policies

Pre-requisites
• An open mind willing to learn new concepts.
• The CFIN core.

The course packet is the only required material for the course. There may be additional readings
for each session that will be available on the course webpage (on LMS). It is useful to supplement

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the course readings with related material from standard texts such as Jonathan Berk and Peter
DeMarzo, Corporate Finance, 5th Edition (Global Edition), Pearson, 2020.

TENTATIVE CLASS SCHEDULE

Class 1: Firm Lifecycle and Financing Over the Lifecycle

• Introducing the overall conceptual framework of the course
• Private companies and introduction to private equity
• Public corporation and public equity markets
• Financing and the life cycle of firms: Agency, Information gaps, Taxes
• Raising capital: Instruments & Market trends
Readings
• Chapter 14-16 of Berk and DeMarzo

Class 2: Venture capital

• Deal valuation and PE-entrepreneur contractual issues
• Quantitative examples, changes rhythm, in-class assignment
Readings
• Lerner, Joshua and Ramana Nanda, 2020, Venture capital’s role in financing innovation:
What we know and how much we still need to learn, Journal of Economic Perspectives,
34(3), 237-261
• Venture capital term sheets, HBS note #9-818-137.
• Term sheet negotiations: A “Rich-vs.-King” approach, HBS note #9-812-028
• A note on valuation of venture capital deals, Thomas Hellman, Stanford GSB, 2001
• Kaplan, Steven and Per Strömberg, 2003, Financial contracting theory meets the real
world, Review of Economic Studies, 70, 281-315
• Kaplan, Steven Antoinette Schoar Private Equity Performance: Returns, Persistence, and
Capital Flows, Journal of Finance Vol. 60, No. 4 (Aug. 2005), pp. 1791-1823
• Cochrane, John, The Risk and Return of Venture Capital, (2005) Journal of Financial
Economics,

Class 3: Private Equity Investing

• Case: Dupont Corporation: Sale of Performance Coatings

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Class 4: Going private •
Who goes private?
• Buyouts -- The role of Strategic v. financial buyers
• Sources of value in buyouts
• Buyout valuation modelling
Case: Dollar General Going Private, HBS Case# 9-108-015

Additional Readings
• Jensen, M., Eclipse of the public corporation, Harvard Business Review, 1997
• Kaplan, S. and Per Strömberg, Leveraged buyouts and private equity, Journal of
Economic Perspectives, Volume 23, Number 1, Spring 2009
• Gompers, P. and Ivashina, V. and Van Gool, J., Note on LBO capital structure, HBS
module note #9-214-039.

Class 5: Initial Public Offerings

• IPO Process: India, USA, Worldwide
• IPO pricing and underpricing: Theory and evidence
• After-market trading in IPOs • Information in prospectuses
Readings for classes 5 and 6
• Alexander Ljungqvist, IPO underpricing, 2007, Handbook of Empirical Corporate
Finance, North Holland. Available at https://ssrn.com/abstract=609422
• Reena Aggarwal, Stabilizing activities by underwriters after initial public offers,
2000, Journal of Finance 55 (3), 1075-1103
• Clarke et al., 2016, Sentiment traders and IPO initial returns: The Indian evidence,
Journal of Corporate Finance 37, 24-37
• Krishnamurthi, C. and D. Penserio, 2014, Price Band, Offer Price Adjustment and Initial
Listing Returns: Evidence from the Indian IPO Market, available at
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2382931
• Professor Jay Ritter’s website: http://bear.warrington.ufl.edu/ritter/ipodata.htm
• IPO Statistics for 2022 and earlier (link)
• Equilibrium in the Initial Public Offering Market, 2011, Annual Review of Financial
Economics 3, 347-374 (link) • Chapter 23, Berk and DeMarzo

Class 6: Initial Public Offerings (Continued)

• Motivations for going public.
• Valuation of firms going public
• The complexities in small firm capital structure

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Case: Immulogic Pharmaceutical Corporation Abridged (HBS #9-293-087) Additional
Readings: Continuation of readings listed in Class 5

Class 7: Small firm financing: Bank loans

• Why borrow from banks?
• How to structure bank loans?
• Evaluating credit risk from a bank’s perspective
• What is the role of bank lending in the modern digital economy?
• Special problems in financing small firms and SMEs.
Case: US Bank of Washington, HBS case #9-292-057
Additional Reading Note on bank loans (HBS # 9-291-026)

Class 8: Large-Firm Lending: Syndicated Loans and CLOs

• The market for syndicated loans and loan sales
• The role of securitization in corporate finance
• Bank capital management
• Modeling credit risk using historical and market data
• Introduction to credit default swaps
Case: Blackstone and the Sale of Citigroup’s Loan Portfolio (HBS# 9-214-037)
Additional Reading: Kundu, 2023 (link)

Class 9: Financing With Embedded Risk Management

• Risk Management in Finance
• Using financing strategy to manage risk
• Role of financial Engineering in corporate finance
• Disclosure in financing strategy
Case: American Barrick Resources Corp (HBS #9-293-128)

Class 10: Summative Case: Financing over the life cycle

• When should firms use leasing
• What are the possible tax, agency, informational or other reasons for issuing convertible
instruments?
• When should companies issue preferred stock relative to straight debt?
• What is the role of public debt and junk bonds in a young firm’s capital structure?
• When should firms consider issuance of seasoned equity?
Case: MCI Communications Corporation (HBS #9-284-057)

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 CASE QUESTIONS TO GUIDE PREPARATION

Dollar General Going Private

1. Why are public firms like Dollar General going private?
2. Based on exhibit 5,6, & 7 what is your assessment of Dollar General’s performance over
time and relative to its peers? What metrics would you focus on and why?
3. How do you explain the performance decline in year ended Feb 2, 2007?
4. As a shareholder of Dollar General, Should Sadayo vote to approve the deal with KKR?
Why?

Immulogic Pharmaceutical Corporation 1.

What are Immulogic’s financial needs?
2. Evaluate Immulogic’s past financial strategy. What sort of complexities and conflicts do
you see in the capital structure of small tech firms? What is different in their capital
structure concerns compared to larger firms?
3. Should Immulogic go public? If so, at what stage or at what time? What financial and
governance problems might the IPO address?
4. How would you value Immulogic? Work out a few different approaches putting on the hat
of a company owner (or pre-IPO investor) and that of an outside investor coming on board
through the IPO.
5. Who are the different players in Immulogic and what might their incentives be about the
going public decision, the IPO pricing, and the aftermath?

US Bank of Washington
1. Evaluate Redhook’s historical business and financial performance
2. What are the business risks in Redhook’s proposed venture? What information might a
banker seek to mitigate these risks?
3. Evaluate Redhook’s financial projections. What key risks do they identify?
4. What in your assessment are Redhook’s real needs and why might US Bank of Washington
be in a unique position to meet them?
5. Why do you think small firms depend on banks for lending? Do you think banks are useful
in the 21st century. Or, as many techies say, are banks irrelevant but not banking?

Blackstone and the sale of Citigroup’s portfolio

1. Why is Citi looking to sell its loan?
2. Does this transaction make sense for Blackstone? Why?

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 3. Using the data on default and recovery rates, do a DCF valuation of the deal. The portfolio
beta is 0.20 and the investment horizon is 5 years.
4. This one is a little harder. Can you back out the implied probability of default from the data
on credit default swaps? The rate of return on the deal?

American Barrick Resources Corporation: Managing Gold Price Risk

1. Analyze the economics of the gold mining industry. What creates sustainable competitive
advantage in this industry?
2. What, in your opinion, is the source of ABX’s success? Provide some back-of-envelope
calculations to back up your analysis.
3. How sensitive are ABX’s earnings to gold prices?
4. Why should a gold company (not) manage its output prices?
5. Describe how each of the instruments used by ABX help the company manage its gold
price exposure.
6. What should ABX do, in light of its Meikle Mine finding?

MCI Communications Corporation, 1983

1. Review MCI’s past financing strategies and current financial condition.
2. Perform a competitive analysis of MCI.
3. Review MCI’s projected financial needs.
4. Select MCI’s target capital structure.
5. What should MCI do now?
6. What kind of companies should issue convertible debt? Why?

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