Finance Simulation - Harvard Business School Press

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ADMINISTRATION SCREENS
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results
team
summary
scenario setup
reservation
prices
zopa
final
Blackstone
IRR
completed
deal prices
deal price
vs. stock
options pool
deal price
vs. pension
prefunding
due
diligence
Due Diligence
#3289
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14
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14
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Faculty can view a brief video
covering administration tools.
9
8
3
0
0
Sales Growth
COGS Percent
Acetate Flake
Southern
Methanol
HQ
Consolidation
Item
CAPEX
Frankfurt
Airport
Asbestos
Liability
OXO Antitrust
Hired by Blackstone
Hired by Celanese
Total
Sales Growth
14
14
28
COGS Percent
14
14
24
Acetate Flake
14
14
28
9
14
23
0
12
14
28
Southern Methanol
HQ Consolidation
12
CAPEX
14
Frankfurt Airport
13
Asbestos Liability
13
OXO Antitrust
14
Finance Simulation Blackstone/Celanese
13
class summary
Uses the dramatic setting of a Mount Everest expedition
to teach group dynamics and leadership. Students play
one of five roles on a team of hikers attempting to summit
Everest, and teammates must share information to maximize
group achievement. This team-based simulation is ideal for
Organizational Behavior, Group Dynamics, and Leadership
courses.
scenario setup
27
13
Team 4
$76
Bid History
Celanese
Blackstone Reservation Price: 31.00
Celanese Reservation Price: 45.20
• The Blackstone Group agreed to acquire Celanese for €36.00 per share
A comprehensive Teaching
Note covers the debrief learning
objectives, including:
• Celanese has accepted Blackstone’s offer of €36.00 per share .
• Blackstone made an offer to Celanese .
• Celanese rejected Blackstone’s offer of €35.00 per share .
omparison of valuation
C
methods, such as Capital Cash
Flows, Equity Cash Flows, and
LBO models
• Blackstone made an offer to Celanese .
n
onflicts of interest among
C
stakeholders
n
n
n
How PE firms generate value
in an LBO
valuation of return
E
expectations
nique challenges and
U
considerations in cross-border
transactions
Negotiation skills
Blackstone
Reservation Price: $31.0
Initial Offer: $29.12
• Blackstone made an offer to Celanese .
Offer Price
Stock options
Blackstone
$0
16:01:00
3:28:24 PM
15:27:22
€29.12 per share
8.00%
© 2008 Harvard Business Publishing. All rights reserved.
Operations Management Simulation: Benihana
Based on the bestselling HBS case on the Benihana restaurant
chain, this simulation covers fundamental concepts in service
and operations management. Challenges include improving
throughput with a batching strategy, how optimal bar and
restaurant layouts maximize customer throughput, and how
demand variability can be reduced. Students must finally
develop the most profitable overall strategy for the restaurant.
4:03:23 PM
We believe this offer is insignificant. It may be higher than the
of our company. We do not believe that it is our shareholders bes
€35.00 per share
Offer Price
10.00%
Stock options
Supplemental
Pension Contribution 2.0
• Celanese rejected Blackstone’s offer of €29.12 per share .
#2650
Deal: $36
4:13:42 PM
16:11:39
• Celanese rejected Blackstone’s offer of €35.00 per share .
log out
n
Celanese
Reservation Price: $45.2
€35.00 per share
Offer Price
11.00%
Stock options
Supplemental
Pension Contribution 400.0
• Blackstone made an offer to Celanese .
Importance of due diligence
in M&A transactions
4:26:26 PM
16:26:05
€36.00 per share
Offer Price
11.00%
Stock options
Supplemental
Pension Contribution 400.0
Teaches the principles of pricing in a dynamic and realistic
management environment. Students play the role of a regional
marketing manager responsible for pricing a fleet of rental cars
across cities in Florida. Can be used in class or as homework.
Ideal for undergraduate and MBA courses in Marketing,
Strategy, Microeconomics, and Operations Management.
Leadership and Team Simulation: Everest
26
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team results
Pricing Simulation: Universal Rental Car
#2093
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hiking
#2653
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Valuation
Due Diligence
Co-authored by Clayton Christensen, this simulation illustrates
innovation and risk challenges that face product development
managers. Students must balance financial goals with the need
to innovate, capitalize on new opportunities, and guard against
disruptive technologies. Students must also evaluate issues and
opportunities in the context of nebulous market information
and constraining financial performance criteria.
Deal Structuring
#2656
Supply Chain Management Simulation:
Root Beer Game
Illustrates how oscillations arise in a simple supply chain and
how variability increases as one moves up the chain (the
“bullwhip effect”). This team-based simulation illustrates the
main factors that contribute to the bullwhip effect. In the
post-play discussion, students learn techniques to control the
bullwhip effect and the elements of effective forecasting.
#3101
Global Supply Chain Management Simulation
In this online simulation, students make key supply chain
management decisions. For the rollout of two models of
mobile phones, students take control of managing product
design, procurement, and production for four simulated years.
#6107
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Mergers and Acquisitions
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Blackstone/Celanese
1
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CAMP
-15°F
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CAMP
9
Finance Simulation
Leadership and Team Simulation: Everest
MC1151551208
team results
The simulation is ideal as a capstone experience for a first-year
MBA finance course. Students play the role of the management
team at one of three wine producers. They must determine
reservation prices and value targets and negotiate over deal
terms before they decide to accept (or reject) final offers.
Product #M13045
class summary
Results are available
immediately for post-play
review and debrief.
Printed on recycled paper.
Finance Simulation: M&A in Wine Country
Finance Simulation Blackstone/Celanese
by Nabil N. El-Hage and Timothy A. Luehrman
Exclusive Video
STUDENT SCREENS
Faculty have access to a debrief video
featuring Anjan Mukherjee, a Managing
Director at Blackstone who played an
integral part in the Celanese deal, as
he explains the deal details to a group
of students who have just completed
the simulation.
In this online simulation, students play one of two roles in the landmark
acquisition of Celanese AG by The Blackstone Group. Both parties
must conduct due diligence, establish deal terms, respond to bids and
counter-bids, and consider the interests of other stakeholders.
Students negotiate three deal terms:
share price, management stock
option pool, and supplemental cash
contribution to the pension plan.
There are three possible rounds of play:
Round 1: Determine reservation price.
Round 2: Conduct due diligence, determine/evaluate offer
terms, and negotiate.
Round 3: Conduct additional due diligence, receive and
respond to stakeholder concerns, and finalize negotiations.
operating assumptions
Students prepare once with
a how-to video, foreground
reading PDF, and role-specific
information. Each round of play
requires students to analyze
information and data and
negotiate a possible deal.
purchase price inputs
Finance Simulation Blackstone/Celanese
prepare
operating
assumptions
analyze
income
statement
Overview
balance
sheet
cash
flow
due
diligence
purchase
price
inputs
sources &
uses of
funds
exit value
& IRR
2004
2004
2005
2006
2007
Confidential Info
2008
Students can see visual representations
of EBITDA and cash flows.
EBITDA
700
-8.60%
0.00%
0.50%
1.60%
5.20%
1.30%
COGS as a % of Sales
62.20%
64.00%
65.00%
67.00%
69.00%
69.00%
Gross Margin
37.80%
36.00%
35.00%
33.00%
31.00%
31.00%
SG&A as a % of Sales
27.20%
25.30%
25.30%
25.30%
25.30%
25.30%
Financial information differs
based on which role the
student plays.
-12.0
8.0
-24.0
-24.0
-42.0
SG&A as a % of Sales After Reduction
27.20%
24.99%
25.50%
24.70%
24.73%
24.32%
EBITDA Margin
10.60%
11.01%
9.50%
8.30%
6.27%
6.68%
4.24%
4.75%
3.24%
2.49%
0.53%
1.00%
208.0
231.0
230.0
234.0
232.0
233.0
Blackstone’s offer to Celanese
Management Stock Option Pool
Blackstone Monitoring Fee
5.0
5.0
5.0
5.0
5.0
Additional Special Charges
15.0
17.2
14.3
14.7
16.2
FD Shares Outstanding
0
2004
2008
due diligence
TEV + Transaction Costs
Preexisting Unfunded Pension Liability
cash
flow
due
diligence
© 2008 Harvard Business Publishing. All rights reserved.
Students play one of two roles: The Blackstone Group or the chemical company that Blackstone is
attempting to acquire, Celanese AG. The objective of the Blackstone player is to get a deal done,
within the parameters established by Blackstone’s Investment Committee. The objective of the
Celanese player is to maximize shareholder value for the company.
Finance Simulation: Blackstone/Celanese
Seat time: 2 hours to several days (flexible)
Product #3712
Estimation of Changes in COGS
COGS as a percentage of sales varied as a result of higher raw
material and energy costs and could be partly offset by increased
selling price. Over time. COGS as a percent of sales could be
Read More >>
Both roles can conduct extensive
due diligence to inform the
valuation of Celanese.
Existing Debt + Pension Liability
purchase
price
inputs
sources &
uses of
funds
exit value
& IRR
chemical
comparables
log out
Confidential Info
2003
03-CapEx
Multiple of EBITDA
Multiple of EBITDA - CapEX
32.66
16.00%
200.0
28.66
13.96%
52.1
-1.0x
1.0x
1,701.8
4.1x
8.2x
525.0
1.3x
2.5x
5.3x
10.7x
5.6x
11.2x
7.7x
15.4x
2,226.8
112.0
2,338.8
878.0
3,216,8
1,403.0
2004
2005
2006
2007
2008
Original
0.0%
05%
1.6%
5.2%
1.3%
Consultant
0.5%
4.3%
9.0%
2.0%
0.7%
Celanese
0.7%
3.5%
0.7%
0.2%
0.0%
61.0%
61.0%
61.0%
61.0%
61.0%
Original
Ask
Ask
Celanese Consultant
Consultant You have not yet requested this information from the consultant.
Celanese
Acetate Flake Restructuring
In 2003, Celanese was primarily a manufacturer of commodity
chemicals; therefore, it did not incur as many marketing and
administrative expenses as a specialty chemicals firm did. SG&A
Read More >>
Southern Methanol Restructuring Opportunity
In 2003, Celanese was primarily a manufacturer of commodity
chemicals; therefore, it did not incur as many marketing and
administrative expenses as a specialty chemicals firm did. SG&A
Read More >>
Original
€ 4.00
million
€ 3.00
million
You have not yet requested this information from Celanese.
0.0
20.0
-12.0
-12.0
-30.0
Consultant You have not yet requested this information from the consultant.
Celanese
Original
© 2008 Harvard Business Publishing. All rights reserved.
Chat
POTENTIAL SOURCES OF SG&A REDUCTION
log out
Chat
Current
decide
Sales Growth Projections & the Chemical Cycle
Understanding where Celanese is in the current chemical cycle
is fundamental to appropriately projecting revenue growth rates.
Thecommodity chemical business is cyclical in nature.
Read More >>
log out
TEV + Pension Liability + Transaction Costs
Finance Simulation Blackstone/Celanese
balance
sheet
chemical
comparables
0.0
Transaction Costs
income
statement
exit value
& IRR
208.3
Purchase Total Enterprise Value (TEV)
operating
assumptions
sources &
uses of
funds
EBITDA - CAPEX
+ SARs Cost
analyze
purchase
price
inputs
416.3
+ 2003E Existing Debt
400
2008
due
diligence
EBITDA
Equity Value
CAPITAL CASH FLOWS
0
2004
decide
PURCHASE VALUATION
Acquisition Premium being Offered
prepare
CapEx
cash
flow
Current Celanese Trading Price Per Share
Sales Growth
EBIT Margin
balance
sheet
Supplemental upfront cash contribution to pension
Potential Additional SG&A Reductions
Students have access to multiple
valuation methods in the
simulation, including an LBO
model, Capital Cash Flows, and
Equity Cash Flows.
analyze
Copy to Clipboard
OPERATING ASSUMPTIONS
Students may copy data to the
computer’s clipboard and then
paste it into the spreadsheet
program of their choice.
income
statement
operating
assumptions
Chat
1998 to 2002
prepare
chemical
comparables
Historical Data
Copy to Clipboard
Finance Simulation Blackstone/Celanese
Each role receives confidential
instructions in each round of play.
decide
Confidential Info
Consultant
response
Extensive analysis
of projected
industry capacity
utilization rates
and end-use
demand suggests
the following
sales growth
pattern.
Chat functionality enables students to
negotiate online.
The computer plays the role of “consultant”
to both the Blackstone deal team and the
Celanese management team, as well as the
role of three additional stakeholders: the
Blackstone Investment Committee, the
Celanese boards, and the lender.
€ 1.00
million
You have not yet requested this information from Celanese.
-2.0
-2.0
-2.0
-2.0
-2.0
Consultant You have not yet requested this information from the consultant.
€ 2.00
million
Currency for this simulation is the euro.
© 2008 Harvard Business Publishing. All rights reserved.
Developed in partnership with Forio Business Simulations.