FINANCE SIMULATION: M&A IN WINE COUNTRY

HOW TO PLAY

OVERVIEW

 Roles

You will play the role of CEO for one of three wine producers:

 Bel Vino

 Starshine

 International Beverage

 Merger or Acquisition?

 Bel Vino and Starshine, two mid-size wineries, are considering a merger of equals which involves an exchange of equity.

 International Beverage, the largest of the three companies, is considering acquiring either Bel Vino or Starshine for cash.

 Simulation Structure

 Round 1: Determine and submit reservation prices for Bel Vino and Starshine

 Round 2: Active bidding & negotiation

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NAVIGATION

 Prepare

 Introduction | How to Play | Historical Stock Price | Valuation Exercise

 Analyze

 Financial News

 Bel Vino

 Starshine

 International Beverage

 Calculators

 Consolidated Statements

(IB role only)

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PREPARE

The Prepare screen provide a variety of preparatory materials:

 How to Play

 User video and detailed steps to complete the simulation

 Download the Foreground Reading to learn more about the U.S. wine industry and the simulation context

 Review the Terminology Primer to learn key terms before beginning the simulation.

 Introduction

 Read the role-specific screen text to learn more about your assigned company

 Historical Stock Prices

 Users can review historical stock prices behavior for each of the three companies as part of preparation.

 Valuation Exercise

 An Excel-based exercise (your instructor may choose to have you complete). You may have to check a box stating you’ve completed the exercise to proceed into the simulation.

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ANALYZE

The Analyze screens display all of the financial information that’s

available to users:

 Financial News: This screen will populate as users make offers in Round 2.

 Company-specific screens: including

 Operating Assumptions

 Financial Statements

 Valuation Methods

 Calculators

 Pro-Forma Consolidated Statements (IB role only)

 Chat: built-in chat available for private online communications with users representing your counterpart at the other firms. Green dots signal when players are online.

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ANALYZE: OPERATING ASSUMPTIONS

The objective of Round 1 is to familiarize yourself with the financial

statements and the various valuation methodologies available in the

simulation. You’re provided Confidential Information to inform your

entries on the Modify Assumptions screens.

The numbers you input on this screen will automatically flow through to

adjust the 5-year projections on the various financial statements (available

on other screens) which feed the valuations.

Navigate to each company’s tab to enter Assumptions for that company.

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ANALYZE: FINANCIALS

Detailed Financial Statements screens are included for all 3 companies.

 Income Statement

 Balance Sheet

 Cash Flow Statement

 Ratio and Growth Rates

Three years of historical data are also provided. Players can toggle tabs to see another company’s data.

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ANALYZE: VALUATION METHODS

The simulation offers a number of different Valuation Methods

 WACC-Based DCF

 Discount Rates + Terminal ValueThis screen illustrates the assumptions driving the determination of the discount rates used to calculate cash flow and the methodology for determining the terminal value. NOTE: There are numerous values here that players can modify but should not do so unless specifically instructed to do so by the faculty.

 Comparable CompaniesThis screen is included in order to provide “peer” financials for each role to consider as another means for arriving at a valuation. Checkboxes are included to include or exclude the various comparable companies from computed averages. The three simulation companies are included as well as four additional “peer” companies. The foreground reading includes additional information on the peer companies.

 Comparable TransactionsThis screen allows you to review “similar” transactions for use in determining value.

 Adjusted Present Value

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ANALYZE: CALCULATORS

The Calculators provided vary depending on the role assigned:

 Bel Vino and Starshine

 Share Exchange Calculator allows users playing the Bel Vino and Starshine roles to determine the appropriate numerical exchange

ratio associated with a merger bid.

 Accretion and Dilution Calculator allows all players to determine the potential for EPS accretion or dilution associated with a merger

or acquisition.

 International Beverage:

 Leverage Decision Calculator allows International Beverage to determine the financing associated with a proposed acquisition.

Since IB must make a cash offer for either Starshine or Bel Vino, IB

must use a combination of debt and cash to finance the proposed

deal. The total financing must be equal to the total offer.

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ANALYZE: PRO-FORMA CONSOLIDATED STATEMENTS

Users playing as IB can toggle to select

Target Company by clicking the icons to

pre-populate consolidated data for Bel Vino

or Starshine

 Consolidated Income Statement

 Consolidated Balance Sheet

 Consolidated Cash Flow Statement

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The International Beverage role is provided three consolidated financial statements.

DECIDE: SIMULATION ROUNDS

The simulation is divided into 2 rounds:

 Round 1In Round 1, users determine and submit reservation

prices. Each role must input reservation values for

both Bel Vino and Starshine. Note that your

instructor may restrict you to just entering

reservation prices as a first step, temporarily limiting

play to Round 1.

 Round 2In Round 2, reservation prices have been set, and

each role can begin active bidding and negotiation.

© 2013 HARVARD BUSINESS SCHOOL PUBLISHING 11Round 2 Bidding: IB

Round 2 Bidding: BV & SS

Round 1 Bidding for all roles

DECIDE: ROUND 2 BIDDING

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In Round 2, you can submit offers to

the other companies. You can only

submit one offer at a time. Once an

offer is submitted, the bidder has the

option to Withdraw Offer.

When another company makes you an offer, you’ll see your

pending offers. You may receive competing offers. Each offer

requires you to respond.

 Reject to continue negotiations

 Accept to formalize the deal and end the simulation.

Deal outstanding: option to withdraw

Two pending deals to consider

 The simulation ends when two of the teams make an agreement:

END OF SIMULATION:

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