Richard S. Ruback

Willard Prescott Smith Professor of Corporate Finance

Unit: Finance

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Richard S. Ruback is the Willard Prescott Smith Professor of Corporate Finance at the Harvard Business School. He is currently focusing his research in applied corporate finance, especially on corporate-control transactions and valuation. His course development work parallels his research interests. He has taught a variety of corporate finance courses throughout his career.  Over the last few years, he and Royce Yudkoff have been developing and teaching a new second year case course titled “The Financial Management of Smaller Firms” and a field course called “Entrepreneurship through Acquisition”.

Ruback earned his Ph.D. in business administration at the University of Rochester in 1980 and taught at MIT's Sloan School before joining the HBS faculty as a visiting professor in 1987. He was appointed associate professor in 1988 and full professor in 1989. Ruback has served as an editor for the Journal of Financial Economics and is the author of numerous articles on corporate finance and valuation.

Ruback has served as a consultant to corporations on corporate finance issues and has acted as an independent advisor to outside directors. He also served as an expert witness on valuation and security issues.

Publications

Books

Journal Articles

  1. Valuation of Bankrupt Firms

    S. C. Gilson, E. S. Hotchkiss and R. S. Ruback

    This study compares the market value of firms that reorganize in bankruptcy with estimates of value based on management's published cash flow projections. We estimate firm values using models that have been shown in other contexts to generate relatively precise estimates of value. We find that these methods generally yield unbiased estimates of value, but the dispersion of valuation errors is very wide—the sample ratio of estimated value to market value varies from less than 20% to greater than 250%. Cross-sectional analysis indicates that the variation in these errors is related to empirical proxies for claimholders' incentives to overstate or understate the firm's value.

    Keywords: Valuation; Business Ventures; Insolvency and Bankruptcy;

    Citation:

    Gilson, S. C., E. S. Hotchkiss, and R. S. Ruback. "Valuation of Bankrupt Firms." Review of Financial Studies 13, no. 7 (spring 2000): 43–74. (Abridged version reprinted in The Journal of Corporate Renewal 13, no. 7 (July 2000)) View Details
  2. The Market for Corporate Control: The Scientific Evidence

    M. C. Jensen and R. S. Ruback

    Keywords: Business Ventures;

    Citation:

    Jensen, M. C., and R. S. Ruback. "The Market for Corporate Control: The Scientific Evidence." Journal of Financial Economics 11, nos. 1-4 (April 1983): 5–50. (Reprinted in The Modern Theory of Corporate Finance, edited by M.C. Jensen and C. W. Smith. New York: McGraw-Hill Book Company, 1984.) View Details

Book Chapters

  1. Behavioral Corporate Finance: A Survey

    Malcolm Baker, Richard Ruback and Jeffrey Wurgler

    Research in behavioral corporate finance takes two distinct approaches. The first emphasizes that investors are less than fully rational. It views managerial financing and investment decisions as rational responses to securities market mispricing. The second approach emphasizes that managers are less than fully rational. It studies the effect of nonstandard preferences and judgmental biases on managerial decisions. This survey reviews the theory, empirical challenges, and current evidence pertaining to each approach. Overall, the behavioral approaches help to explain a number of important financing and investment patterns. The survey closes with a list of open questions.

    Keywords: Decisions; Prejudice and Bias; Debt Securities; Financial Management; Price; Theory; Investment; Problems and Challenges; Behavioral Finance; Corporate Finance;

    Citation:

    Baker, Malcolm, Richard Ruback, and Jeffrey Wurgler. "Behavioral Corporate Finance: A Survey." In The Handbook of Corporate Finance: Empirical Corporate Finance, edited by Espen Eckbo. New York: Elsevier/North-Holland, 2002. View Details

Working Papers

  1. Valuation When Cash Flow Forecasts Are Biased

    Richard S. Ruback

    This paper focuses adaptations to the discount cash flow (DCF) method when valuing forecasted cash flows that are biased measures of expected cash flows. I imagine a simple setting where the expected cash flows equal the forecasted cash flows plus an omitted downside. When the omitted downside is temporary, the adjustment is to deflate the forecasts and to set the discount rate equal to the cost of capital. However, when the downside is permanent, the adjustment is to deflate the cash flows and to increase the discount rate so that it includes the cost of capital plus the probability of a downside.

    Keywords: Forecasting and Prediction; Cash Flow; Cost of Capital; Performance Expectations; Prejudice and Bias; Valuation;

    Citation:

    Ruback, Richard S. "Valuation When Cash Flow Forecasts Are Biased." Harvard Business School Working Paper, No. 11-036, October 2010. View Details

Cases and Teaching Materials

  1. Roxbury Technology Corporation

    Richard S. Ruback and Royce Yudkoff

    Roxbury Technology is a Boston-based re-manufacturer of ink and toner cartridges. In early 2012 RTC was re-evaluating its approach to the company's two most important goals: reducing customer concentration and increasing profitability. RTC's largest customer accounted for most of its sales and the company had roughly broken even over the last two years. The two goals were intertwined because RTC's sales growth strategy had to be designed so it didn't bring the company into conflict with its largest customer. That raised its marketing costs and reduced profitability.

    Keywords: social enterprise; Social Entrepreneurship; Financial Management; Green Technology Industry; Manufacturing Industry; Boston;

    Citation:

    Ruback, Richard S., and Royce Yudkoff. "Roxbury Technology Corporation ." Harvard Business School Case 213-029, September 2012. (Revised December 2013.) View Details
  2. Castronics, LLC

    Richard S. Ruback and Royce Yudkoff

    Patrick Dickinson (HBS '09) and Michael Weiner (MIT's Sloan '07) acquired Castronics, a firm that specialized in threading pipe used in the oil and natural gas industry, at the end of 2009. The partners overcame significant hurdles during the first two years of ownership, which included the loss of nearly half of their workforce, the threatened entry of a formidable competitor into their market, and limited production capacity. In spite of these challenges and many other day-to-day obstacles, by the summer of 2011, the company successfully tripled production and EBITDA and the partners were deciding whether or not to sell the company.

    Keywords: small business; Search Funds; corporate finance; Entrepreneurship; Financial Management; Energy Industry; Western United States;

    Citation:

    Ruback, Richard S., and Royce Yudkoff. "Castronics, LLC." Harvard Business School Case 213-028, September 2012. View Details
  3. MC Tool

    Richard S. Ruback and Royce Yudkoff

    Two partners acquired MC Tool in October 2007 for $5 million. The company was a machine shop that manufactured parts for a wide variety of applications in the energy, automotive and industrial equipment industries. In their first year of ownership, the partners focused on improving operations and enhancing sales with impressive results: sales doubled and EBTIDA increased by over 40%. But the "Great Recession" had an immediate impact in the fall of 2008 as customers cancelled orders and new sales became scarce. MC Tool's core business was cyclical and risky. The partners were considering transforming the business towards manufacturing more precise parts that would be less cyclical and less risky.

    Keywords: Capital Budgeting; Risk Management; Risk and Uncertainty; Problems and Challenges; Business Strategy; Production; Manufacturing Industry; United States;

    Citation:

    Ruback, Richard S., and Royce Yudkoff. "MC Tool." Harvard Business School Case 213-013, July 2012. (Revised June 2013.) View Details
  4. Home Nursing of North Carolina

    Richard S. Ruback and Royce Yudkoff

    Ari Medoff's (HBS '11) goal was to control his own professional destiny by owning his own company. His search identified a suitable acquisition in Home Nursing of North Carolina, and he had negotiated a purchase price of $3.5 million, or 4.2x trailing EBITDA. Medoff had completed his due diligence, arranged financing, and completed the legal documents required to complete the acquisition and anticipated closing the transaction in just a few weeks. But then the sellers surprisingly asked to renegotiate the terms of the note they had agreed to early in the acquisition process. Medoff must decide whether to renegotiate the debt or abandon the transaction.

    Keywords: Search Funds; Small Companies; Acquisitions; negotiation; valuation; medical services; Negotiation Process; Valuation; Investment; Acquisition; Health Industry;

    Citation:

    Ruback, Richard S., and Royce Yudkoff. "Home Nursing of North Carolina ." Harvard Business School Case 212-120, June 2012. (Revised June 2013.) View Details
  5. Penn Warranty Corporation

    Richard S. Ruback and Royce Yudkoff

    Penn Warranty Corporation sold warranty contracts to the used car market. During the recession in 2008/2009 Penn's sales declined by 26% Instead of growing by 11% as forecasted. Also, disruptions in financial and insurance markets created a cash shortfall. In the summer of 2009, Penn was facing the likelihood of default and possible foreclosure under its loan agreements. Its lender was refusing to waive covenants unless the company paid down $1 million of its outstanding debt of $7.75 million. The only source for such a refinancing was the equity investors who funded buyout of purchase of the company eighteen months earlier.

    Citation:

    Ruback, Richard S., and Royce Yudkoff. "Penn Warranty Corporation." Harvard Business School Case 212-007, September 2011. (Revised from original August 2011 version.) View Details
  6. Executive Compensation at Talent Partners

    Richard S. Ruback and Royce Yudkoff

    Talent Partners' CEO was very successful at growing the business and establishing its leadership position. He was compensated with a mix of salary and options and he did not own any equity in the company. The options were set so that if Talent Partners achieved its financial plan over the next five years, about half of his total compensation would come from the options.

    Keywords: Executive Compensation; Equity; Stock Options; Managerial Roles; Growth and Development Strategy;

    Citation:

    Ruback, Richard S., and Royce Yudkoff. "Executive Compensation at Talent Partners." Harvard Business School Case 211-073, January 2011. (Revised June 2013.) View Details
  7. HCA, Inc. (A)

    Richard S. Ruback

    Focuses on the buyout of HCA by three private equity firms: Bain Capital, KKR, and Merrill Lynch Global Private Equity. It provides an opportunity to discuss a variety of issues related to leveraged buyouts including the process, the role of private equity, the incentives of the participants, the benefits to conflicting shareholders, and the valuation of the buyout.

    Keywords: Leveraged Buyouts; Private Equity; Investment; Business and Shareholder Relations; Conflict and Resolution; Valuation;

    Citation:

    Ruback, Richard S. "HCA, Inc. (A)." Harvard Business School Case 207-076, November 2006. (Revised December 2011.) View Details
  8. Gemini Investors

    Richard S. Ruback and Royce Yudkoff

    Gemini Investors was a private equity firm focused on small and lower middle market businesses. Gemini's target investment size was between $4 million and $6 million and a typical portfolio company had revenue of between $8 million and $30 million. In early 2010, Gemini was completing the investment of Gemini's Fund IV and it was deciding whether it should raise a fund sized similarly to their prior funds, or alternatively, raising a significantly larger fund.

    Keywords: Private Equity; Investment; Investment Funds; Markets; Size; Financial Services Industry; United States;

    Citation:

    Ruback, Richard S., and Royce Yudkoff. "Gemini Investors." Harvard Business School Case 211-066, February 2011. (Revised June 2013.) View Details
  9. Lind Equipment

    Richard S. Ruback and Royce Yudkoff

    Lind Equipment failed to meet its loan covenants with its senior bank lender in the summer of 2008, just six months after it was acquired. While the senior bank debt comprised only 6% of the capital used in the acquisition and was fully secured, it exercised its right to stop payments to Lind's subordinated lender that funded about 40% of the acquisition, pushing that debt into default as well. These financial problems were the result of declining revenues and profits at Lind as exchange rates and the impact of the Great Recession took its toll on the firm. Without a quick solution, Lind could be pushed into bankruptcy.

    Keywords: Financial Condition; Borrowing and Debt; Capital; Revenue; Financing and Loans; Financial Strategy; Financial Management; Acquisition; Financial Crisis; Currency Exchange Rate; Insolvency and Bankruptcy; Manufacturing Industry; Industrial Products Industry;

    Citation:

    Ruback, Richard S., and Royce Yudkoff. "Lind Equipment." Harvard Business School Case 212-012, August 2011. (Revised June 2013.) View Details
  10. National Public Broadcasting

    Richard S. Ruback and Royce Yudkoff

    Bob Williams, the CEO of National Public Broadcasting (NPB), was considering an unsolicited offer to purchase the company in the early spring of 2006. The company was a media underwriting representative for public television and radio stations throughout the United States. When Mr. Williams and his wife Linda Williams started NPB in 1996, they had imagined that it would grow quickly and be acquired by a larger media representation firm in a few years. But the business proved to be more complex than they had anticipated with slower growth and less interest from strategic acquirers and, as a result, Mr. Williams had been running NPB ever since. The unsolicited offer gave the Williams and their partners the potential opportunity to realize a significant cash payment for the business. The case explores the impact on the sale of the ownership structure decisions that were made when NPB was formed and the complexity of the sales process for small businesses.

    Keywords: Mergers and Acquisitions; Decision Choices and Conditions; Financial Management; Ownership; Advertising Industry; Media and Broadcasting Industry;

    Citation:

    Ruback, Richard S., and Royce Yudkoff. "National Public Broadcasting." Harvard Business School Case 211-058, January 2011. (Revised July 2012.) View Details
  11. Greg Mazur and the Purchase of Great Eastern Premium Pet Foods

    Richard S. Ruback and Royce Yudkoff

    Greg Mazur decided to purchase a small business after graduating from the Harvard Business School. The case explores his decision about whether or not he should finalize his deal to purchase Great Eastern Premium Pet Foods, Inc. ("GEPP"). It gives students the opportunity to consider his search process, his due diligence about the company, his post-purchase plans, his valuation analysis and the structure of the potential transaction.

    Keywords: Mergers and Acquisitions; Entrepreneurship; Financing and Loans; Negotiation Deal; Negotiation Preparation; Strategic Planning; Valuation;

    Citation:

    Ruback, Richard S., and Royce Yudkoff. "Greg Mazur and the Purchase of Great Eastern Premium Pet Foods." Harvard Business School Case 211-085, February 2011. (Revised June 2013.) View Details
  12. Nashton Partners and its Search Fund Process

    Richard S. Ruback and Royce Yudkoff

    Nashton Partners was a search fund founded by two HBS MBA's that raised $500,000 to finance a search for a company that they could purchase and then run for the next five to ten years. The case examines the search fund structure, the two-year search, and two potential acquisitions.

    Keywords: Mergers and Acquisitions; Capital Structure; Financing and Loans; Investment Funds; Partners and Partnerships;

    Citation:

    Ruback, Richard S., and Royce Yudkoff. "Nashton Partners and its Search Fund Process." Harvard Business School Case 212-006, July 2011. (Revised July 2012.) View Details
  13. Marlin & Associates and the Sale of Riverview Technologies

    Richard S. Ruback and Royce Yudkoff

    Riverview Technologies was a Stockholm, Sweden-based company that had developed software hedge funds. After spending more than a year in an organized sale process, the winning bidder had become increasingly difficult to work with and the closing had been substantially delayed. Despite the late stage of the process, the selling shareholders were considering walking away.

    Keywords: Mergers and Acquisitions; Entrepreneurship; Negotiation Deal; Negotiation Offer; Negotiation Process; Financial Services Industry;

    Citation:

    Ruback, Richard S., and Royce Yudkoff. "Marlin & Associates and the Sale of Riverview Technologies." Harvard Business School Case 211-083, February 2011. (Revised May 2011.) View Details
  14. Red Hen Baking Company

    Richard S. Ruback and Royce Yudkoff

    In 2007, the Red Hen Baking Company was deciding whether to move from its cramped and inefficient facility to a new facility. It had been in business about 8 years, and 2006 was the first year RHB realized a profit that was over $50,000. The added annual cost of the new location was about $58,000 and would require a $300,000 build-out. While the owner of Red Hen was excited about the possibility of a new, efficient bakery, he wondered if it was worth the added expense and risk.

    Keywords: Entrepreneurship; Capital; Risk Management; Expansion;

    Citation:

    Ruback, Richard S., and Royce Yudkoff. "Red Hen Baking Company." Harvard Business School Case 211-091, March 2011. (Revised June 2013.) View Details
  15. Triple Point Technology

    Richard S. Ruback and Royce Yudkoff

    The founding CEO of Triple Point Technology, Peter Armstrong, was considering the sale of the company. The company specialized in providing its clients with software used for transaction processing and risk management in various commodity markets. Triple Point Technology had grown substantially in its 13 years of existence and potentially was a source of a significant amount of wealth for its owners. The sale was prompted by a co-founder who wanted to sell his share of the business. The case explores the rationale for owners to monetize at least a portion of their company's value, the sales process, and compares two different offers from the perspective of the company's executives that will have a significant continuing interest in it.

    Keywords: Business Exit or Shutdown; Private Equity; Financial Management; Negotiation Offer; Sales; Valuation;

    Citation:

    Ruback, Richard S., and Royce Yudkoff. "Triple Point Technology." Harvard Business School Case 211-057, December 2010. (Revised January 2013.) View Details
  16. Talismark

    Richard S. Ruback and Royce Yudkoff

    Talismark, which helped its customers manage their waste, was considering re-engineering its business fundamentals to dramatically increase profitability by changing its sales and information processes. Implementing the changes would be expensive and would interrupt its new customer acquisition efforts, and it would be 18 months until the company could begin to acquire new business. The case explores the rationale and consequences of re-engineering a business.

    Keywords: Transition; Decision Choices and Conditions; Profit; Growth and Development; Information Management; Business Processes; Organizational Change and Adaptation; Sales; Utilities Industry;

    Citation:

    Ruback, Richard S., and Royce Yudkoff. "Talismark." Harvard Business School Case 211-097, April 2011. (Revised July 2012.) View Details
  17. Next Street, LLC

    Richard S. Ruback and Royce Yudkoff

    Next Street Financial, LLC was a modern merchant bank that provided high quality advisory services and capital to small- and mid-sized inner city businesses. Next Street was a for-profit business that aimed to increase the growth, profitability and success of its client companies, thereby enhancing economic development, wealth and job creation in the inner city. The advisory component of its mission seemed well underway but raising a fund to directly finance client companies had proved challenging. As Next Street considered expanding its capacity to help clients achieve their growth potential, the firm was deciding between raising a fund or focusing its resources on expanding its abilities to more effectively help its clients obtain financing from other institutions.

    Keywords: Development Economics; Entrepreneurship; Capital; Commercial Banking; Investment Funds; Urban Development; Financial Services Industry;

    Citation:

    Ruback, Richard S., and Royce Yudkoff. "Next Street, LLC." Harvard Business School Case 211-094, March 2011. (Revised June 2013.) View Details
  18. Businesses for Sale by Briggs Capital, 2010

    Richard S. Ruback and Royce Yudkoff

    Briggs Capital was a regional mergers and acquisitions advisory firm that helped owners to sell their small firms. The case presents a company that was for sale in the fall of 2010—a troubled manufacturer of post and beam style homes and log homes. Using the actual information that was available to potential buyers, students evaluate the potential acquisition.

    Keywords: Mergers and Acquisitions; Business Exit or Shutdown; Entrepreneurship; Financial Condition; Investment; Financial Services Industry; Boston;

    Citation:

    Ruback, Richard S., and Royce Yudkoff. "Businesses for Sale by Briggs Capital, 2010." Harvard Business School Case 211-088, February 2011. (Revised June 2013.) View Details
  19. ALAC International

    Richard S. Ruback and Royce Yudkoff

    ALAC was a small importer of specialty industrial chemicals. The case explores the different financing alternatives to facilitate the company's explosive growth in working capital. At the end of 2009, the company was awarded the United States distributorship for the specialty chemical di-isononyl phthalate (DINP) from a large Taiwanese producer and had almost tripled its sales in 2010. It expected to double its sales in 2011 and to dramatically increase its profits. ALAC critically needed to obtain financing for the explosive growth in its inventory and accounts receivable balances.

    Keywords: Working Capital; Growth Management; Financing and Loans; Chemical Industry;

    Citation:

    Ruback, Richard S., and Royce Yudkoff. "ALAC International." Harvard Business School Case 211-065, February 2011. (Revised June 2013.) View Details
  20. Clear Channel 2006

    Richard S. Ruback and Leslie Pierson

    The Board of Directors of Clear Channel Communications, a radio broadcasting and outdoor advertising company, has to respond to a revised proposal from two private equity firms to take the company private. In November of 2006, the Board had unanimously approved an offer of $37.60 per share after going through intense negotiations with numerous firms, but institutional shareholders had indicated that they would reject this offer. In light of this recent news, the two private equity firms had come back to the Board with a revised offer. Now the Board must decide if it thinks the new proposal will satisfy the institutional shareholders, one of which is an activist hedge fund.

    Keywords: Decision Choices and Conditions; Private Equity; Governing and Advisory Boards; Negotiation Offer; Privatization; Business and Shareholder Relations;

    Citation:

    Ruback, Richard S., and Leslie Pierson. "Clear Channel 2006." Harvard Business School Case 208-083, November 2007. (Revised March 2009.) View Details
  21. The Restructuring of Daiei

    Richard S. Ruback

    In 2004, the Industrial Revitalization Corporation of Japan (IRCJ) was given the task of restructuring Daiei, one of the largest Japanese retailers and the country's most prominent zombie companies. The IRCJ was a government-sponsored organization that was funded with 50 billion yen in equity capital and 10 trillion yen of government - guaranteed funds. Daiei presented the IRCJ with a unique opportunity to demonstrate the effectiveness of its restructuring strategy which would require a significant write-down of Daiei's bank debts, substantial store closures and workforce reductions, and sufficient new private equity capital to help reposition and revitalize Daiei's retail operations. Overcoming these hurdles in a large and visible company like Daiei would be an important accomplishment for the IRCJ. But, failure, too, would have far reaching consequences.

    Keywords: Restructuring; Capital Structure; Private Equity; Performance Effectiveness; Retail Industry; Japan;

    Citation:

    Ruback, Richard S. "The Restructuring of Daiei." Harvard Business School Case 209-060, November 2008. (Revised January 2009.) View Details
  22. ABRY Fund V

    Nabil N. El-Hage, Richard S. Ruback and Leslie Pierson

    In January 2006, Andrew Banks and Royce Yudkoff were considering raising a 5th fund for their media-focused private equity firm, ABRY Partners. ABRY had a strong track record that the co-founders attributed to their group's deep knowledge of the media industry and relationships with media lenders, coupled with a client-service approach to working with Limited Partners. For the fund, Banks and Yudkoff had intended to raise $1 billion and continue their existing strategy, but potential Limited Partners had indicated that they would be willing to commit up to $4 billion. Banks and Yudkoff had to decide whether or not to quadruple the capital in their latest fund.

    Keywords: Cooperative Ownership; Venture Capital; Customer Relationship Management; Asset Management; Private Equity; Judgments; Competitive Strategy; Media; Corporate Finance; Media and Broadcasting Industry; Financial Services Industry;

    Citation:

    El-Hage, Nabil N., Richard S. Ruback, and Leslie Pierson. "ABRY Fund V." Harvard Business School Case 208-027, July 2007. (Revised March 2008.) View Details
  23. Clearwire Corporation

    Richard S. Ruback

    Explores Clearwire's decision to fund its substantial capital investments through an initial public offering (IPO) or through private equity. Clearwire is developing and deploying a broadband wireless network using WiMAX technology. It had filed a registered statement for its IPO when the alternative of funding through strategic investments by Intel and Motorola became a possibility.

    Keywords: Private Equity; Wireless Technology; Technological Innovation; Initial Public Offering; Investment Portfolio; Telecommunications Industry;

    Citation:

    Ruback, Richard S. "Clearwire Corporation." Harvard Business School Case 207-065, October 2006. View Details
  24. RJR Nabisco

    Richard S. Ruback

    Gives students the opportunity to explore issues facing the board of directors in a leveraged buyout. RJR Nabisco is valued under different operating strategies and the source of gains in leveraged buyouts is stressed.

    Keywords: Leveraged Buyouts; Profit; Operations; Problems and Challenges; Strategy; Valuation;

    Citation:

    Ruback, Richard S. "RJR Nabisco." Harvard Business School Case 289-056, May 1989. (Revised August 2006.) View Details
  25. Carol Brewer's Investments

    Richard S. Ruback and Julia Stevens

    Following her husband's death in 1994, Carol Brewer took over the management of her family's investments. This case describes the decisions Brewer made during this process, including her choice to seek active account management, her selection of an investment firm, and her determination of asset allocation within her portfolio. In 2003, Brewer is reassessing her previous investment choices and considering changes she might need to make in the future in light of her plans to retire in six years and live on the income from her investments.

    Keywords: Investment Funds; Investment Portfolio; Retirement; Decision Choices and Conditions; Financial Management; Personal Finance; Investment Banking; Investment Return;

    Citation:

    Ruback, Richard S., and Julia Stevens. "Carol Brewer's Investments." Harvard Business School Case 204-017, July 2003. (Revised January 2004.) View Details
  26. Giant Cinema

    Malcolm P. Baker, Richard S. Ruback, Erik Stafford and Kathleen Luchs

    The owner of Giant Cinema must decide whether to invest in a digital projector, a new technology for screening films, or purchase a traditional projector. The impact of the new technology is uncertain, and the case describes probabilities for different outcomes that students can incorporate in the financial analysis of the proposed project.

    Keywords: Entrepreneurship; Film Entertainment; Technology Adoption; Financial Strategy; Investment; Outcome or Result; Risk and Uncertainty; Technology; Entertainment and Recreation Industry;

    Citation:

    Baker, Malcolm P., Richard S. Ruback, Erik Stafford, and Kathleen Luchs. "Giant Cinema." Harvard Business School Case 204-052, September 2003. (Revised January 2004.) View Details
  27. Dell's Working Capital

    Richard S. Ruback and Aldo Sesia

    Dell Computer Corp. manufactures, sells, and services personal computers. The company markets its computers directly to its customers and builds computers after receiving a customer order. This build-to-order model enables Dell to have much smaller investment in working capital than its competitors. It also enables Dell to more fully enjoy the benefits of reduction in component prices and to introduce new products more quickly. Dell has grown quickly and has been able to finance that growth internally by its efficient use of working capital and its profitability. This case highlights the importance of working capital management in a rapidly growing firm.

    Keywords: Financial Management; Working Capital; Manufacturing Industry; Computer Industry;

    Citation:

    Ruback, Richard S., and Aldo Sesia. "Dell's Working Capital." Harvard Business School Case 201-029, August 2000. (Revised December 2003.) View Details
  28. Eskimo Pie Corporation (Abridged)

    Richard S. Ruback

    In early 1991, Reynolds Metals, the makers of aluminum products, decided to sell its holding of Eskimo Pie, a marketer of branded frozen novelties. Reynolds had an offer from Nestle to acquire Eskimo Pie. However, Reynolds decided instead to make an initial public offering of Eskimo Pie shares.

    Keywords: Food; Initial Public Offering; Cost of Capital; Valuation; Business Divisions; Brands and Branding; Food and Beverage Industry;

    Citation:

    Ruback, Richard S. "Eskimo Pie Corporation (Abridged)." Harvard Business School Case 202-037, September 2001. (Revised December 2003.) View Details
  29. Whirlpool Europe

    Richard S. Ruback, Sudhakar Balachandran and Aldo Sesia

    This case presents a capital budgeting problem. Whirlpool Europe is evaluating an investment in an enterprise resource planning (ERP) system that would reorganize the information flow throughout the company. Students derive the cash flows from working capital, sales, and other improvements along with the cost of the investment.

    Keywords: Working Capital; Cash Flow; Investment; Capital Budgeting; Consumer Products Industry; Europe;

    Citation:

    Ruback, Richard S., Sudhakar Balachandran, and Aldo Sesia. "Whirlpool Europe." Harvard Business School Case 202-017, November 2001. (Revised December 2003.) View Details
  30. Managing a 401(k) Fund

    Richard S. Ruback and Kathleen Luchs

    Focuses on an individual's decision to participate in his firm's 401(k) plan and how to invest his contributions. Plan participants have a choice of 10 mutual funds with different investment strategies. Includes data from Morningstar on the composition and performance of the different funds and information on different asset allocation strategies provided by the fund administrator, T. Rowe Price.

    Keywords: Investment Funds; Investment; Saving; Asset Management; Financial Management; Decision Making; Personal Finance; Financial Services Industry;

    Citation:

    Ruback, Richard S., and Kathleen Luchs. "Managing a 401(k) Fund." Harvard Business School Case 204-077, October 2003. (Revised December 2003.) View Details
  31. Pharmacyclics: Financing Research & Development

    Malcolm P. Baker, Richard S. Ruback and Aldo Sesia

    Pharmacyclics (NASDAQ: PCYC), a pharmaceutical company that manufactures products that will improve existing therapeutic treatments for cancer, arteriosclerosis, and retinal disease, was considering a $60 million private placement in February 2000. The company had more cash than ever before, but projections of R&D and marketing expenses were also unprecedented. PCYC's most promising oncology drug, a radiation enhancer called Xcytrin, was in Phase III clinical trials--the rigorous final phase before FDA approval for commercialization. Analysts gave the drug a slightly better than 50% chance of success. This case focuses on stage financing and a simple decision-tree evaluation. Students have the opportunity to consider the impact of past staged financing decisions on the ownership structure of the firm and to evaluate the current stock market price in light of analyst forecasts of the cash flow and the probability of success for each drug. These two analyses help inform the private placement decision.

    Keywords: Valuation; Cash Flow; Financing and Loans; Business Startups; Financial Strategy; Medical Devices and Supplies Industry; Pharmaceutical Industry; Health Industry;

    Citation:

    Baker, Malcolm P., Richard S. Ruback, and Aldo Sesia. "Pharmacyclics: Financing Research & Development." Harvard Business School Case 201-056, January 2001. (Revised July 2003.) View Details
  32. Radio One, Inc.

    Richard S. Ruback and Pauline M Fischer

    Radio One (NYSE: ROIA and RIOAK), the largest radio group targeting African-Americans in the country, had the opportunity to acquire 12 urban stations in the top 50 markets from Clear Channel Communications, Inc. (NYSE: CCU) in the winter of 2000. The stations were being sold by Clear Channel Communications, Inc. to obtain Federal Communications Commission (FCC) approval for its acquisition of AMFM, Inc. (NYSE: AFM). Radio One was also negotiating the acquisition of nine stations in Charlotte, North Carolina, Augusta, Georgia, and Indianapolis, Indiana. The proposed acquisitions would double the size of Radio One. The case focuses on the strategic and financial evaluation of the proposed acquisitions.

    Keywords: Negotiation; Valuation; Race Characteristics; Mergers and Acquisitions; Financial Strategy; Media and Broadcasting Industry; Indiana; United States; North Carolina;

    Citation:

    Ruback, Richard S., and Pauline M Fischer. "Radio One, Inc." Harvard Business School Case 201-025, September 2000. (Revised May 2003.) View Details
  33. Merck & Company: Evaluating a Drug Licensing Opportunity

    Richard S. Ruback and David B Krieger

    This explores the valuation of an opportunity to license a compound before it enters clinical trials. Describes Merck's decision tree evaluation process is presented. Information required to evaluate a specific licensing opportunity is provided, including the costs of the three phases of the review process, the revenues if approved, and the probability of various outcomes. It includes an introduction to decision tree analysis and valuation.

    Keywords: Decision Making; Cost vs Benefits; Opportunities; Valuation; Outcome or Result; Pharmaceutical Industry;

    Citation:

    Ruback, Richard S., and David B Krieger. "Merck & Company: Evaluating a Drug Licensing Opportunity." Harvard Business School Case 201-023, October 2000. (Revised March 2003.) View Details
  34. Health Development Corporation

    Richard S. Ruback

    Health Development Corp. (HDC) owns and operates health clubs in the Greater Boston area. HDC engaged a local investment banker to explore a sale of the company. The most likely buyer views HDC's prior purchase of real estate as a negative. HDC's management is convinced the purchase enhanced value, and a discounted cash flow analysis confirms that it was a substantially positive net present value decision. Nevertheless, the real estate reduces the valuation according to the approach used by the potential buyer. The challenge is to structure a transaction that allows HDC to realize its full value.

    Keywords: Cash Flow; Property; Business Exit or Shutdown; Valuation; Value; Decisions; Health Industry; Boston;

    Citation:

    Ruback, Richard S. "Health Development Corporation." Harvard Business School Case 200-049, May 2000. (Revised January 2003.) View Details
  35. Eskimo Pie Corporation

    Richard S. Ruback

    In early 1991, Reynolds Metals, the makers of aluminum products, decided to sell its holding of Eskimo Pie, a marketer of branded frozen novelties. Reynolds had an offer from Nestle to acquire Eskimo Pie. However, Reynolds decided instead to make an initial public offering of Eskimo Pie shares. The case analyzes this decision.

    Keywords: Initial Public Offering; Decisions; Mergers and Acquisitions; Performance Productivity; Leadership; Corporate Entrepreneurship; Expansion; Ownership; Food and Beverage Industry; Manufacturing Industry;

    Citation:

    Ruback, Richard S. "Eskimo Pie Corporation." Harvard Business School Case 293-084, November 1992. (Revised August 2001.) View Details
  36. Tree Values

    Richard S. Ruback and Kathleen Luchs

    Describes two alternative tree cutting strategies. The first is to cut all trees that are at least 12 inches in diameter at breast height. The second is to thin the forest by cutting less desirable trees immediately and harvesting the crop trees later. The case presents information for students to estimate the cash flows for each alternative. After estimating the corresponding cash flows, students have the opportunity to use discounted cash flow techniques to decide when to cut trees under each strategy and to select which strategy maximizes the value of the forest.

    Keywords: Strategy; Decision Making; Cash Flow; Decision Choices and Conditions; Management Practices and Processes; Value Creation; Forestry Industry;

    Citation:

    Ruback, Richard S., and Kathleen Luchs. "Tree Values." Harvard Business School Case 201-031, October 2000. View Details
  37. Kochman, Reidt + Haigh, Inc.

    Richard S. Ruback and Roy Burstin

    A small company faces the dilemma of how to finance growth (i.e., internally generated cash flows vs. outside financing sources). An innovative concept positions the company in promoting a niche within the kitchen-cabinet industry and in looking for an optimal way of leveraging that concept for fast growth.

    Keywords: Cash Flow; Business Growth and Maturation; Entrepreneurship; Corporate Finance; Growth and Development Strategy; Consumer Products Industry; Utilities Industry;

    Citation:

    Ruback, Richard S., and Roy Burstin. "Kochman, Reidt + Haigh, Inc." Harvard Business School Case 294-056, December 1993. (Revised June 2000.) View Details
  38. Marriott Corporation: The Cost of Capital (Abridged)

    Richard S. Ruback

    Gives students the opportunity to explore how a company uses the Capital Asset Pricing Model (CAPM) to compute the cost of capital for each of its divisions. The use of Weighted Average Cost of Capital (WACC) formula and the mechanics of applying it are stressed.

    Keywords: Cost of Capital; Mathematical Methods;

    Citation:

    Ruback, Richard S. "Marriott Corporation: The Cost of Capital (Abridged)." Harvard Business School Case 289-047, March 1989. (Revised April 1998.) View Details
  39. Marriott Corporation: The Cost of Capital

    Richard S. Ruback

    Presents recommendations for hurdle rates of Marriott's divisions to select by discounting appropriate cash flows by the appropriate hurdle rate for each division.

    Keywords: Cost of Capital; Asset Pricing;

    Citation:

    Ruback, Richard S. "Marriott Corporation: The Cost of Capital." Harvard Business School Case 298-101, February 1998. (Revised March 1998.) View Details
  40. Southland Corp. (A)

    Richard S. Ruback

    Examines the Thompson's $4.9 billion leveraged buyout of the Southland Corp. in 1987. As the original founders of Southland, the Thompsons were concerned about losing control over the company upon learning of the Belzberg family's acquiring interest. The teaching objectives are: to explore the characteristics of an LBO candidate, to examine the dynamics of the corporate control process when insiders are substantial stockholders, and therefore serve as both buyer and seller, and to evaluate the cash flow forecasts in an LBO and use them to analyze bidding behavior.

    Keywords: Leveraged Buyouts; Governance Controls; Corporate Governance; Bids and Bidding; Valuation; Forecasting and Prediction; Management Analysis, Tools, and Techniques; Strategy; Cash Flow;

    Citation:

    Ruback, Richard S. "Southland Corp. (A)." Harvard Business School Case 291-038, April 1991. (Revised December 1997.) View Details
  41. Chrysler Takeover Attempt, The

    Richard S. Ruback and William DeWitt

    On April 12, 1995, Kirk Kerkorian made an unsolicited offer to buy the outstanding shares of Chrysler Corp. This case analyzes the proposed deal and addresses the key contextual elements contributing to the takeover attempt.

    Keywords: Valuation; Negotiation Deal; Negotiation Offer; Acquisition; Financial Strategy; Manufacturing Industry; Auto Industry; United States;

    Citation:

    Ruback, Richard S., and William DeWitt. "Chrysler Takeover Attempt, The." Harvard Business School Case 296-078, February 1996. (Revised September 1996.) View Details
  42. Introduction to Cash Flow Valuation Methods

    Richard S. Ruback

    Provides an introduction to three cash flow valuation methods. The three methods differ in their measure of cash flows and the discount rate applied to those cash flows. The names for the three methods correspond to the type of cash flow that is used in the valuation: Equity Cash Flow (ECF), Capital Cash Flow (CCF), and Free Cash Flow (FCF). The three methods provide consistent valuations when applied correctly.

    Keywords: Cash Flow; Valuation;

    Citation:

    Ruback, Richard S. "Introduction to Cash Flow Valuation Methods." Harvard Business School Background Note 295-155, May 1995. (Revised October 1995.) View Details
  43. A Note on Capital Cash Flow Valuation

    Richard S. Ruback

    Presents the capital cash flow method for valuing risky cash flows. In this method cash flows are calculated to include the benefits of interest tax shields. In a capital structure, with just ordinary debt and common equity, capital cash flows equal the flows available to equity--net income plus depreciation less capital expenditure and the change in working capital--plus the cash interest paid to bondholders. The interest tax shields decrease taxable income and thereby increase cash flows. Since the interest tax shields are included in the cash flows, a before-tax interest rate that corresponds to the riskiness of the assets is appropriate to value the capital cash flows.

    Keywords: Capital; Cash Flow; Valuation;

    Citation:

    Ruback, Richard S. "A Note on Capital Cash Flow Valuation." Harvard Business School Background Note 295-069, November 1994. (Revised January 1995.) View Details
  44. Philip Morris Companies and Kraft, Inc.

    Richard S. Ruback

    Gives students the opportunity to explore the effect of substantial free cash flow on corporate acquisition and operating strategies. Students are also given the opportunity to extract information from the common stock prices of the participating firms. A variety of valuation techniques are employed to assess the plausibility of a restructuring plan.

    Keywords: Cash Flow; Strategic Planning; Acquisition; Strategy; Restructuring; Valuation; Stocks;

    Citation:

    Ruback, Richard S. "Philip Morris Companies and Kraft, Inc." Harvard Business School Case 289-045, March 1989. (Revised October 1994.) View Details
  45. Southland Corp. (B)

    Richard S. Ruback

    Examines Southland's financial difficulties following the LBO in 1987 up to the first restructuring plan in July 1990. The teaching objectives are: to explore the complexities of a failed leverage buyout and the operating restrictions that result from financial distress, to recognize that financing decisions can restrict future flexibility, to examine the dynamics of a restructuring with particular focus on the role of new equity, and the payoffs received by pre-existing claimholders, and to explain the complexity of accomplishing a restructuring outside of bankruptcy.

    Keywords: Leveraged Buyouts; Restructuring; Equity; Insolvency and Bankruptcy; Financing and Loans; Crisis Management;

    Citation:

    Ruback, Richard S. "Southland Corp. (B)." Harvard Business School Case 291-039, April 1991. (Revised July 1994.) View Details
  46. Pioneer Petroleum Corp.

    Richard S. Ruback

    Pioneer is an integrated oil company. Its operations include exploration and development, production, transportation, and marketing. The case focuses on Pioneer's cost of capital calculations and its choice between a single company-wide cost of capital or divisional costs of capital. Provides students the opportunity to learn how to calculate a company-wide weighted average cost of capital. An appropriate measure of the cost of equity capital is presented so that students are able to challenge their understanding of key concepts by critiquing the company's measure and suggesting their own.

    Keywords: Cost of Capital; Energy Industry; Mining Industry;

    Citation:

    Ruback, Richard S. "Pioneer Petroleum Corp." Harvard Business School Case 292-011, July 1991. View Details

Other Publications and Materials

  1. Estimating Industry Multiples

    Malcolm Baker and R. S. Ruback

    We analyze industry multiples for the S&P 500 in 1995. We use Gibbs sampling to estimate simultaneously the error specification and small sample minimum variance multiples for 22 industries. In addition, we consider the performance of four common multiples: the simple mean, the harmonic mean, the value-weighted mean, and the median. The harmonic mean is a close approximation to the Gibbs minimum variance estimates. Finally, we show that EBITDA is a better single basis of substitutability than EBIT or revenue in the industries that we examine.

    Keywords: Management Analysis, Tools, and Techniques; Performance; Mathematical Methods;

    Citation:

    Baker, Malcolm, and R. S. Ruback. "Estimating Industry Multiples." 1999. View Details

    Research Summary

  1. Corporate Control and Valuation

    by Richard S. Ruback

    Richard S. Ruback's research and course development focus on applied corporate finance-in particular, corporate control transactions and valuation. His research on corporate control has yielded case studies on major transactions, such as the RJR Nabisco leveraged buyout, and their consequences (examined in a three-case series on Southland Corporation, owner of the 7-Eleven convenience-store chain). It includes a study (with Paul Healy and Krishna G. Palepu) that examines the postmerger performance and determinants of the long-term financial success of large merged firms. Ruback's work on valuation has produced a series of cases that highlight effective valuation tools and the consequences of their use. It includes a study (with Steven Kaplan) of how cash flow forecasts are valued in capital markets.