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Transforming a production-oriented firm into a marketing-oriented firm; aligning marketing strategy of local companies in globalizing emerging markets; creating sustainable competitive advantage.

Post graduate management courses in marketing management, strategic marketing, international marketing, business strategy.

This case is about how the leader in the Indian paper industry, Ballarpur Industries Ltd (BILT), is proactively transforming a production-oriented firm to a marketing-oriented firm to compete in the globalizing emerging market scenario, in the wake of economic liberalisation. It requires the participants to evaluate the impact of marketing initiatives made, and align BILT's marketing strategy to leverage it's strengths and help create sustainable competitive advantage.

To understand the need for local companies in emerging markets to proactively align marketing strategy to build competitive advantage in the globalizing industry.

Teaching notes.

In February 1991, the managers of this multinational specialty publishing company proposed to take the company private in a leveraged buyout (LBO). In addition to the ordinarily interesting features of the typical LBO, this transaction was the first to be denominated in ECUs and one of the few in which the managers provided all the equity financing. The tasks for the student are to value the company and evaluate the attractiveness of the transaction from the standpoints of seller, senior lender, mezzanine lender, and equity investor/manager. The case can be used to (1) exercise students' skills in valuing a highly leveraged company, (2) illustrate how deal structuring can mitigate potential agency problems, and (3) explore the problems and possible solutions associated with financing a global firm.

This case was developed to serve as a foundation for student discussion of the use of contingent forms of payment in M&A. The protagonist in the case represents the buyer, and must design terms of contingent payment (“arnout”) that will protect the buyer if the rosy future does not occur, yet reward the seller if it does. Students are given completed discounted cash flow (DCF) valuations of the target (Digitech) under both the seller's and buyer's forecasts, which reveal a wide gulf in valuation. The protagonist seeks to bridge this gulf through a combination of fixed and contingent payments to the seller. Two different earnout designs are suggested in the case. Students must simulate the value of the earnout to estimate the expected value of this provision from the standpoints of both the buyer and seller.