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Case study
Publication date: 20 January 2017

Michael J. Schill and Elizabeth Shumadine

This case examines the April 2007 decision of British music company EMI to suspend its annual dividend as the company struggled to respond to the effect of digital audio…

Abstract

This case examines the April 2007 decision of British music company EMI to suspend its annual dividend as the company struggled to respond to the effect of digital audio distribution on its core business. The EMI case is intended to serve as an engaging introduction to corporate financial policy and themes in managing the right side of the balance sheet. The case contrasts EMI's storied success with artists such as the Beatles, the Beach Boys, Pink Floyd, and Norah Jones with its recent inability to succeed in financial markets. In light of takeover threats and restructuring costs, EMI's CFO Martin Stewart must recommend EMI's dividend policy.

Details

Darden Business Publishing Cases, vol. no.
Type: Case Study
ISSN: 2474-7890
Published by: University of Virginia Darden School Foundation

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Case study
Publication date: 1 December 2005

Pauline Assenza and Alan B. Eisner

After decades of successful expansion, The Reader's Digest Association's products were mature. With an average readership age for the flagship Reader's Digest magazine of 50.3 in…

Abstract

After decades of successful expansion, The Reader's Digest Association's products were mature. With an average readership age for the flagship Reader's Digest magazine of 50.3 in 2004, efforts to develop new products had so far failed to entice a significant number of younger customers. Following a financial downturn in 1996, positive financial results remained illusive. Several major changes instituted by Thomas O. Ryder, CEO since 1998, including acquisitions, re-capitalization, restructuring and systematic re-engineering of the corporate culture, had proven mildly successful, but RDA, as well as the entire publishing industry, faced a persistent decline in profitability. Could RDA fulfill its stated mission to create “products that inform, enrich, entertain and inspire people of all ages and cultures around the world”, and could it do this by continuing to rely on the 80-year old Reader's Digest magazine?

Details

The CASE Journal, vol. 2 no. 1
Type: Case Study
ISSN: 1544-9106

Case study
Publication date: 6 March 2017

Vishwanath S.R., Kulbir Singh, Jaskiran Arora and Durga Prasad

The case highlights the ambitious growth strategy of Suzlon, an Indian company specializing in non-conventional (wind) energy. In 2007, Suzlon announced the acquisition of REpower…

Abstract

Synopsis

The case highlights the ambitious growth strategy of Suzlon, an Indian company specializing in non-conventional (wind) energy. In 2007, Suzlon announced the acquisition of REpower of Germany, one of the top wind power companies in the world. It issued zero coupon and coupon bearing foreign currency (US dollar) convertible bonds (FCCB) amounting to $760 million to finance the acquisition. These bonds were listed in Singapore. Due to deteriorating business conditions the company experienced a sharp decline in profitability and stock price resulting in a debt overhang. At the same time, the Indian rupee depreciated from INR44 to INR55 leading to losses on largely unhedged, foreign currency coupon payments. The company had to restructure its capital structure to escape bankruptcy. Since FCCB holders did not agree to restructure the terms of the instrument, the company had to turn to senior lenders to restructure debt. Eventually Suzlon had to sell-off REpower to reduce leverage.

Research methodology

The case is based on interviews of market intermediaries and published information. The information relating to the restructuring has been taken from the information statement filed with the Securities Exchange Board of India and the Stock Exchanges. The timeline of events were constructed from the information available in company press releases. Financial statements and other details are from the documents filed with the regulators and supplemented with the information available in Prowess database. The stock price and stock market index data are from the websites of Bombay Stock Exchange and the National Stock Exchange of India. Exchange rates, inflation and interest rates have been taken from Bloomberg and the Reserve Bank of India website. Valuation inputs like multiples are from Prowess database and security analyst reports. Sources of information are documented appropriately in the case and instructor’s manual. Although we interviewed the investment bankers involved in the restructuring we have not included any private information in the case to preserve confidentiality.

Relevant courses and levels

This case can be used in a corporate finance course or in a module on debt restructuring in a corporate restructuring course or in the financing module in an advanced corporate finance course or in an International Finance course. It can also be used to teach an integrated approach to valuation and financing in a valuation course.

Theoretical bases

The case highlights the rationale for issuing FX convertible debt, parity conditions in international finance and the use of alternate valuation models.

Details

The CASE Journal, vol. 13 no. 2
Type: Case Study
ISSN: 1544-9106

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