Benjamin C. Esty

Benjamin C. Esty

Roy and Elizabeth Simmons Professor of Business Administration

Roy and Elizabeth Simmons Professor of Business Administration

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Benjamin C. Esty
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Featured Work Publications Teaching Awards & Honors

Books
Books

Journal Articles
Journal Articles

Book Chapters
Book Chapters

  • Esty, B. C. "Project Finance." Chap. D4 of Handbook of Modern Finance, edited by James Seward and Dennis Logue. New York: Warren, Gorham & Lamont, 2004. View Details
  • Esty, B. C. Comment on "Restructuring Bank Regulation." Restructuring Regulation and Financial Institutions, edited by J. R. Barth, R. D. Brumbaugh, and G. Yago, 79–84. Santa Monica, CA: Milken Institute Press, 2000. View Details
  • Baldwin, C. Y., and B. C. Esty. "Lessons from the Thrift Crisis." Chap. 2 in Financial Services: Perspectives and Challenges, edited by Samuel L. Hayes III, 35–64. Boston, MA: Harvard Business School Press, 1993. View Details

Working Papers
Working Papers

Cases and Teaching Materials
Cases and Teaching Materials

Other Publications and Materials
Other Publications and Materials

All Publications

Benjamin Esty is the Roy and Elizabeth Simmons Professor of Business Administration at Harvard Business School where he has taught for the past 25 years.  He designed and currently teaches an elective course called Strategies for Value Creation in the second year of the MBA program which serves as a capstone course by integrating financial, strategic, and leadership issues in a single course. Over the years, he has taught a variety of courses ranging from advanced corporate finance and project finance to business strategy and leadership. The project finance course, called Large-Scale Investment (LSI), analyzed how firms structure, value, finance, and negotiate large capital investments. He also teaches in and chairs a number of executive education programs, and served as the founding faculty chairman of the General Management Program (GMP), a comprehensive leadership program designed to create outstanding business leaders that now has more than 3,500 graduates. He served as the faculty chair for the Summer Venture in Management Program, a management training program for underrepresented minority students, for 14 years and was the Head of the Finance Unit (department) from 2009-14. He has received the Student Association Award for teaching excellence multiple times, the Charles M. Williams Award for contributions to student learning, the Apgar Award for teaching innovations, and the Greenhill Award for outstanding service to the school (twice).

His current research focuses on topics at the intersection of corporate finance and corporate strategy with a particular interest on how firms make major strategic decisions with firm value as an important, but by no means only, criterion. His articles have been published in a variety of academic and practitioner-oriented journals. In addition, he has written more than 180 case studies, technical notes, and teaching notes on corporate finance, corporate strategy, leadership, mergers and acquisitions, and valuation issues. Collectively, HBS Publishing has sold more than two million copies of his cases and notes, 39 of them are now or have been classified as HBS "bestsellers", and seven have been classified as "classic" cases. The case studies and notes on project finance are contained in a book entitled Modern Project Finance: A Casebook (Wiley).  Formerly, he was an associate editor of the Journal of Financial Economics (JFE), Journal of Money, Credit & Banking (JMCB), Emerging Markets Review (EMR), Financial Management (FM), Journal of Financial Services Research (JFSR), and Journal of Project Finance (JPF).

In addition to his academic research, Professor Esty has served as a consultant and led training programs for companies and organizations around the world. He has served as an expert witness and consultant for litigation involving project finance, corporate finance, and complex valuation issues.  He currently serves as a director of Raymond James Financial, Inc. (NYSE: RJF), a diversified financial services company, where he chairs the Audit & Risk Committee and serves on the Corporate Governance & ESG committee.  He also serves on the board and chairs the Audit & Risk Committee of Harvard Business Publishing, a $300 million not-for-profit education company; the advisory board of Gemline, a supplier of high-quality promotional products; and the Finance & Investment Committee of the New England Deaconess Association, a not-for-profit continuing care retirement community founded in 1889. Formerly, he was an independent trustee for the Eaton Vance family of mutual funds and a director of the Harvard University Employees Credit Union (HUECU).

Professor Esty received his Ph.D. in Business Economics with a concentration in finance from Harvard University; his MBA with high distinction (Baker Scholar) from Harvard Business School; and his BA degree in Economics with honors and distinction from Stanford University.

Featured Work
Best-selling and New Cases by Ben Esty

Best-Selling (MOST POPULAR) Cases:  

  1) Buffett's Bid for Media General (HBS #213-142)
     > Valuing decline, Disruption, TV growth rates, Financial distress
  2) Generating Higher Value at IBM (HBS #215-058)
     > Payout policy, LT earnings guidance, driving corp. change
  3) Tempur Sealy International (HBS #717-501)
      > Buyer vs. supplier bargaining power, dynamics, value capture
      ***A new teaching note is now available from HBS Publishing
  4) The a2 Milk Company (HBS #719-424)
      > Compet. adv., mkt. attractiveness, judo strategy, disruption
  5) Sandlands Vineyards (HBS #718-438)
      > Assess mkt attractiveness & comp. advantage, sustainability
  6) Supply Chain Finance at P&G—US/Brazil (HBS #216-039)
     > Modern working capital mgmt, supply chains, banking, fin. strategy
  7) Canadian Pacific's Bid for NSC Corp--Canada (HBS #216-057)
     > DCF valuation, valuing synergies, contingent payments
  8) Molycorp (A): Financing Rare Earth Minerals (HBS #214-054)
     > Financial strategy, financing growth, DCF valuation, conv. debt
  9) Valuing Snap After the IPO Quiet Period (A, HBS #218-095)
     > Financial strategy, financing growth, DCF valuation, convertible debt
10) De Beers: Diamond Reselling Opportunity (HBS #717-430)
     > Strategy execution, scope choices, durable vs consumable goods
  

  New M&A Cases: 

  1) Competing Bids for Anadarko Petroleum (HBS #220-087)
      > Review case: valuation, capital structure, M&A, corp. governance
      > Bidding wars, valuing & financing acquisition offers
  2) Canadian Pacific's Bid for NSC Corp.—Canada (HBS #216-057)
     > Comprehensive case—bridging valuation gaps, agency conflicts
     > DCF Valuation, contingent value rights, synergy value, activist investor
  3) Bega Cheese: Bringing Vegemite Home—Australia (HBS #218-001)
     > Linking strategy and finance, valuation roadmap & mechanics
     > Value drivers, corporate scope, iconic brands
  4) Buffett's Bid for Media General (HBS #213-142)
     > Forecasting cash flows, terminal values, and TV growth rates
     > Valuing decline, disruption, costs of financial distress
   5) Dow's Bid for Rohm & Haas (HBS #211-020)
      > Writing merger contracts, legal terms, risk allocation
      > DCF valuation, Impact of the financial crisis, synergy value
   6) Impax Labs: Executing Accretive Acquisitions (HBS #220-030)
      > EPS accretion analysis & value relevance, Value drivers
      > Competing and sustaining advantage in generic pharmaceuticals
   7) Bayer: Bidding for Merck's OTC Division—Germany (HBS #217-021)
      > Forecasting and valuing synergies in horizontal mergers
      > Bidding strategy, negotiations, corporate strategy, DCF valuation
   8) Whirlpool: The Deal for Hefei Sanyo—China (HBS #216-019)
      > Entering China (acquiring a Chinese SOE)
      > Gaining political, commercial & regulatory approval
   9) OldTown Berhad—Malaysia (HBS #218-058)
      > Valuing an acquisition offer in 3 ways: DCF, multiples, & price premia 
   

New CORPORATE FINANCE Cases: 

  1) SpartanNash: The Amazon Warrants (A, HBS #222-022)
      > Buyer-seller negotiations, Unique deals, valuing warrants
      > Kornit Digital: The Amazon Warrants (C, HBS #222-045)
  2) Generating Higher Value at IBM (HBS #215-058)
      > Payout policy, LT earnings guidance, driving change, leadership
  3) Supply Chain Finance at P&G—US/Brazil (HBS #216-039)
      > Modern working capital mgmt, supply chains, banking, fin. Strategy
  4) FANUC's Financial & Governance Policies—Japan (HBS #216-042)
      > Japanese corporate governance and macroeconomic growth policies
  5) Hapag-Lloyd: Complying w/IMO 2020—Germany (HBS #220-003)
      > Environ. regulation, evaluating options & addressing uncertainty
  6) Molycorp A: Financing Rare Earth Minerals (HBS #214-054)
      > Financial strategy, financing growth, DCF valuation, convertible debt
  7) Thomas Cook Group on the Brink—United Kingdom (HBS #215-008)
      > Leadership, restructuring, change mgmt, fin. strategy, taking over
  8) Unidentified Industries: Australia 2014 (HBS #216-014)
      > Overview of financial ratios, intro. to financial statement analysis

New VALUATION Cases:

  1) Eaton: Portfolio Transformation and Cost of Capital (HBS #221-006)
      > WACC theory & estimation, divisional vs corporate WACC, divestment
      > Abridged version (no appendix w/WACC derivation, HBS #221-070)
      > Note on WACC: Derivation, Intuition, & Applications (HBS #221-106)
  2) Valuing Snap After the IPO Quiet Period (A, HBS #218-095)
      > DCF valuation, analysts—affiliation bias, terminal value, IPO anomalies
  3) Valuing Celgene's CVR (HBS #221-031)
      > Incorporating sytematic & diversifiable risks in DCF, CVR motivations  
  4) United Technologies: Are the Parts > the Whole? (HBS #220-018)
      > Corporate strategy, conglomerate discount, and activist investors
      > Sum-of-the-parts valuation, capital allocation & internal capital mkts
  5) Compass Maritime Services (HBS #211-014)
    > Valuation during the fin. crisis, regressions analysis, comparables
  6) VHSS: Valuing Ships (Germany) (HBS #210-058)
    > Compare mark-to-mkt (comparables) vs mark-to-model (DCF)
    > Contagion during the fin. crisis; Fire sales, bubbles, & asset prices

New STRATEGY Cases:

  1) The a2 Milk Company—Australia & NZ (HBS #719-424)
      > Creating compet. advantage, Assessing market attractiveness
      > Selling technology products vs. the underlying IP
      > Judo strategy for mkt entry; Incumbent's barriers to response
  2) SpartanNash: The Amazon Warrants (A, HBS #222-022)
      > Buyer-seller negotiations, Unique deals, valuing warrants
  3) Sandlands Vineyards (HBS #718-438)
      > Assess market attractiveness & competitive advantage,
      > Sustainability of advantage, vertical integration
  4) Bespoken Spirits: Disrupting Distilling (HBS #721-419)
      > Disruption, product vs. tech. business models, cost/dual advantage 
      ***A new teaching note is now available from HBS Publishing
  5) Bed Bath & Beyond: The New Strategy (HBS #221-062)
      > Creating & losing competitive adv.; Strategy formulation & execution
  6) Astralis: Determining a Brand Strategy--Denmark (HBS #721-382)
      > Brand strategy (single vs multi), esports, emerging ecosystem
  7) De Beers:  Diamond Reselling Opportunity (HBS #717-430)
      > Strategy execution, cust. value, corporate scope, secondary mkt
  8) De Beers:  Lightbox for Lab-Grown Diamonds (#719-408)
      > Strategy execution, disruption, commoditization, differentiation
  9) Tempur Sealy International (HBS #717-501)
      > Buyer vs. supplier bargaining power, dynamics, value capture
  10) MoviePass: The "Get Big Fast" Strategy (#719-455)
      > Profit vs. growth, racing for customers, value of data
  11) Gillette: Cutting Prices to Gain Share (HBS #720-378)
      > Price wars; Calculating & using price elasticities of demand
      > Product positioning; vertical differentiation
  12) Navistar-PACCAR (HBS #717-452)
      > Est. customer value, value/premium adv., scope, strategic choices
  13) TransDigm in 2017 (HBS #720-422) 
      > Value creation vs capture, bargaining power, business ethics
      > Creating and sustaining competitive advantage
  14) TransDigm: Acquiring & Integrating Arkwin (HBS #720-467)
      > Value drivers, value-based pricing, limit pricing, M&A integration
  15) TransDigm: The Acquisition of Aerosonic (HBS #720-480)
      > M&A negotiations, merger agreements, valuation analysis

 Shareholder vs. Stakeholder Governance Models

  1) Airbnb: Stakeholder Capitalism Faces a Test (HBS #221-050)
      > Crisis mgmt-Pandemic, balancing stakeholder interests, platforms
  2) Airbnb: Stakeholder Governance Lessons (B Case, HBS #222-003)
      > Balancing interests across stakeholders & over time; actions taken
  3) Danone: Becoming a Mission-Driven Company (A Case, HBS #722-354)
      > Balancing people, purpose, and profit (dynamic 3-part case series)
      > Corporate governance and France's new "Entreprise a Mission" status
  4) MTN: Unlocking Value & Driving Socioecon. Progress (HBS #722-371)
      > Strategy formulation and execution; Value creation and distribution


The a2 Milk Company
HBS Case #719-424
The a2 Milk Company (a2MC) became the most valuable company listed on the New Zealand stock exchange in 2018 by capitalizing on a biochemical discovery related to the protein composition of cow’s milk--cows naturally produce two types of beta casein proteins (A1 and A2). Because many people find the A1 protein difficult to digest, and that protein may be related to a variety of other health problems (e.g., diabetes and heart disease), a2MC sold dairy products containing only the A2 protein. In sold primarily milk and infant formula in Australia and China.  With sales of NZ$730 million in 2017 and a desire to grow, a2MC formed a strategic relationship with Fonterra, the world’s sixth largest dairy company, in February 2018. But one month later, Nestle, the world’s largest dairy company, confirmed that it had begun selling its own A2 infant formula in China and people speculated that it would start selling A2 products in Australia and New Zealand later in the year. a2MC’s retiring CEO Geoffrey Babidge and newly appointed CEO Jayne Hrdlicka must decide how to respond to Nestle’s entry. Can this successful entrant become a successful incumbent with a sustainable competitive advantage?
Sandlands Vineyards
HBS Case #718-438

Approximately 80% of the 9,000 wineries in the US breakeven or lose money. An even greater percentage, perhaps 90-95%, lose money on an economic basis (i.e., after a charge for the capital employed).  Tegan Passalacqua is a Californian winemaker who appears to have defied the odds.  He specializes in making “old vine” wine (i.e., wine from vines that are at least 60 and up to 100+ years old).  By day, he is the head winemaker at Turley Wine Cellars, a leading producer of Zinfandel most of which are produced from grapes grown on old vines. In his spare time, however, he runs his own winery called Sandlands which makes premium wines using forgotten, yet classic grape varieties such as Carignane, Mataro, and Chenin Blanc. The challenge is to understand why he has succeeded to date and if that performance will persist into the future.  The case is set in December 2017, as Passalacqua and his wife were deciding whether to buy a building and develop it into a winery at a cost of up to $500,000.  Because they already own an old-vine vineyard (the Kirschenmann Vineyard in Lodi, CA), and have limited financial resources, they must decide whether to develop the winery or save their funds to buy another vineyard.

Eaton Corp.: Portfolio Transformation and the Cost of Capital
HBS Case #221-006
In 2000, Eaton Corporation was broadly diversified industrial conglomerate.  But its strategy was evolving and its focus was narrowing around “power management” and more recently on “intelligent power,” the use of digitally enabled products and services designed to enhance efficiency and reliability. To implement this transition, Eaton had acquired more than 70 companies and divested another 50. Such active portfolio management required Eaton to regularly assess the prospects of each business unit—the profit and growth potential—and to explore opportunities to enhance its capabilities through acquisitions. In January 2020, Eaton got an offer from Danfoss, a Danish conglomerate, to buy its hydraulics business for $3.3 billion.  Recently appointed CEO Craig Arnold must decide whether this deal makes sense strategically and financially. In particular, he must decide if $3.3 billion is a fair price for the firm’s hydraulics business.

This short case shows how firms can use discounted cash flow (DCF) analysis to make important strategic decisions. The case helps students understand the intuition underlying and the mechanics for calculating a firm’s weighted average cost of capital (WACC) at both the corporate and divisional levels. An Appendix explains and derives the formulas for the WACC; case data allows students to calculate it.  There is an abridged version of the case (HBS #221-070) that does not contain the appendix; the appendix also exists as a standalone note (HBS #221-106).
Airbnb During the Pandemic--Stakeholder Capitalism Faces a Critical Test
As the covid pandemic spread in early 2020, global travel ground to a halt. For Airbnb, the San Francisco-based platform for renting accommodations, the impact was both swift and severe as revenues plummeted more than 70% over the prior year. Responding to the sudden downturn was a challenge for CEO Brian Chesky and his leadership team because the firm had a adopted a stakeholder model with five key constituents: guests (renters), hosts (landlords), employees, communities and shareholders. While all five groups could benefit in the long-term if the firm succeeded, it was less clear how they should balance the potentially conflicting demands in the short-term particularly given the mounting losses. As one of the first Silicon Valley "unicorns" to have adopted a stakeholder business model, the world would be watching to see what they did, how they did it, and why.
     This case has two pedagogical objectives. First, it explores one firm's attempt to create and implement a stakeholder business model. Second, the case analyzes decision making during a crisis. Would the stakeholder model hinder operations at a critical time or would it provide an advantage that increased the probability of survival?
TransDigm in 2017: The Beginning of the End or The End of the Beginning?
HBS Case #720-422
TransDigm, an incredibly successful yet relatively unknown company, manufactures a wide range of highly engineered aerospace parts utilizing a somewhat controversial strategy. In the 10 years following its IPO in March 2006, its stock price increased by more than ten times, and both its revenues and non-GAAP EBITDA had grown at compound annual rates in excess of 20% for more than 20 years. But in early 2017, government officials, a major investor, and a major customer had begun to question the implementation, sustainability, and ethics of the firm’s strategy. That strategy combined acquisition-driven growth (i.e., a “roll-up”) with operations emphasizing three value drivers:  value-based pricing, cost reductions, and new product development. With the firm’s stock price down 30% off its recent high, TransDigm CEO Nick Howley must decide whether to respond to the rising level of criticism and, if so, how. In the longer term, he has to decide whether to change the firm’s “value-focused strategy.” If he were going to change the firm's proven operating strategy, what aspects should he change and how should he justify the changes to his loyal shareholder base?
Tempur Sealy International
HBS Case #717-502

This case explores the long-term relationship between Tempur Sealy (TPX, a mattress manufacturer) and Mattress Firm (MFRM, a bedding retailer and TPX’s largest customer).  For almost 20 years, the firms have enjoyed a mutually beneficial and commercially prosperous relationship. Yet in August 2016, Steinhoff (a large, South African retailer) made an offer to acquire MFRM.  Whether this acquisition will affect the symbiotic relationship that had existed between TPX and MFRM was the subject of intense speculation.  This case provides a deep dive into the dynamic interaction between a buyer and seller to illustrate two of Porter’s “Five Forces.”  In particular, it defines the concepts of buyer (customer) and supplier power, illustrates how power gets expressed in a commercial relationship, and explores how and why the balance of power can change over time.  It challenges students to address a fundamental managerial decision in most commercial relationships:  when is it appropriate to collaborate in a symbiotic relationship to create value, and when is it appropriate to compete in an attempt to capture value?

***A new teaching note is now available from HBS Publishing (Apr 22)***

Valuing Snap After the IPO Quiet Period
HBS Case #218-095

Snap, the disappearing message app, went public at $17 per share on March 2, 2017, making its two 20-something founders the youngest self-made billionaires in the country. Over the next three weeks, 14 analysts make investment recommendations on Snap: two with buy recommendations, six with holds, and six with sells. When the “IPO quiet period” expired three weeks later, 16 more analysts—who worked at firms that were underwriters for the IPO—issued recommendations: 10 with buy and six with hold recommendations, with price targets ranging from $21 to $31 compared to a current market price of $23. Elizabeth Kemp, the portfolio managers of a long-only, technology fund at Sand Hill Road Capital, had bought 500,000 shares at the IPO and had to decide whether to harvest her gain or to double down and buy more shares. 

This short (4 pages of text) case is designed: 1) to teach DCF valuation and illustrate the challenges of valuing young, rapidly growing technology firms; 2) to highlight the differences between affiliated and unaffiliated analysts—are the affiliated ones more informed or more conflicted; 3) to illustrate how valuation is done in practice and raise questions about current practice (e.g., are DCF models used to predict or to justify particular equity values); and 4) to provide a forum in which to discuss IPO anomalies such as underpricing.

The De Beers Group: Exploring the Diamond Reselling Opportunity
HBS Case #217-430

In September 2014, Tom Montgomery (SVP of Strategic Initiatives at the De Beers Group) and his team launched a pilot program in the United States to explore the opportunity to sell pre-owned (recycled) diamonds--current sales were estimated to be approximately $1 billion per year. According to Montgomery, the motivation for the pilot program was to improve the consumer reselling experience and to enhance “diamond equity.” Somewhat paradoxically, consumers often received very low prices when they tried to sell diamonds (5-30% of the original retail price) leaving them reluctant to purchase diamonds in the future and making them into ambassadors of ill will.  At a meeting scheduled for November 2015, the De Beers Executive Committee would have to decide whether to end the pilot program, extend it for another year to gather more information, or convert it into a new standalone business unit. Because De Beers had historically focused on producing rough diamonds (the “upstream” business), yet the new business unit offered an opportunity to sell polished diamonds (the “downstream” business), the decision was particularly noteworthy.

See also The DeBeers Group:  Launching Lightbox Jewelry for Lab-Grown Diamonds (HBS #719-408) which describes the firm's decision to address the growing demand for lab-grown (synthetic) diamonds.

Bespoken Spirits: Disrupting Distilling
HBS Case #721-419

On October 7, 2020, Bespoken Spirits publicly announced it had received $2.6 million of seed funding for its “sustainable maturation process,” a process that could produce award-winning whiskeys in just days rather than years using a novel technology and data science. The technology dramatically reduced the time, cost, and environmental impact of making whiskey (it required less energy, space, and wood). At the same time, the technology could also be used to enhance a whiskey’s taste profile (aroma, color, and taste) which could allow distillers to charge more for their products. To date, entrepreneurs Stu Aaron and Martin Janousek had proven they could produce whiskey at scale and with desired properties. Having validated the concept, they now had to decide whether to continue making whiskey themselves or use their technology to process whiskey for others. In short, they had to decide whether to be a product-based, B2C company or a technology-based, B2B company, or both? If they decided to be a technology business, should they emphasis the Maturation-as-a-Service (MaaS, faster and lower cost production) or the Customization-as-a-Service (CaaS, creation of customized/bespoken products with unique taste profiles) business in the short term?

This short case has four objectives. First, it illustrates how new technologies can dramatically change industry economics. Second, it shows how a novel technology can create a competitive advantage by reducing input costs, improving quality, or both. Third, it forces students to confront a common, yet difficult decision of whether to become a product-based or a technology-based company. As part of that assessment, students must consider both the nature and sustainability of the advantage as well as the investment cost, risk, and feasibility of each strategic option.

 

 

MoviePass: The "Get Big Fast" Strategy
HBS #719-455
In August 2017, MoviePass dramatically lowered its monthly subscription price from $50 to just $10 for up to one movie per day. The idea was to rapidly scale the business to the point where it could generate incremental revenue streams from related businesses (e.g., a share of ticket and concession revenues from theaters, advertising revenue from movie studios; and revenue from ride-sharing companies). Within two days, Moviepass had gotten 150k new subscribers; within six months, it had more than 2 million. But as of February 2018, the company faced three challenges: theaters were resisting the concept, investors were shorting the stock in record numbers as losses mounted, and competiting services were beginning to appear. Could CEO Lowe convince investors that the company was viable and it could, indeed, monetize its growing subscriber base? At the same time, Lowe had to decide whether to raise subscription prices to cover the growing losses or keep prices low to grow the subscriber base as quickly as possible.
Generating Higher Value at IBM
HBS Case #215-058
This case analyzes IBM's financial performance and its capital allocation decisions over a 10-year period from 2004-2013, during which IBM returned more than $140B to shareholders through a combination of dividends and share repurchases. During this time, CEO Sam Palmisano's created, announced, and then regularly updated a long-term financial "roadmap" as part of the firm's strategic transformation. The roadmap showed both a destination (a target EPS number) and a detailed path to that destination in terms of revenue growth, margin expansion, and share repurchases. After successfully achieving its first roadmap, the firm announced a second 5-year roadmap known as the "2015 EPS roadmap". The case is set in May 2014, just after IBM's annual investor briefing. Despite more than 10 years of strong financial performance, IBM reported relatively weak financial results in the first quarter of 2014. Sophia Johnson, an equity analyst, must decide whether to revise her investment recommendation based on what she heard that day.
Supply Chain Finance at Procter & Gamble
HBS Case #216039
In April 2013, Procter & Gamble (P&G), the world's largest consumer packaged goods (CPG) company, announced that it would extend its payment terms to suppliers by 30 days. At the same time, P&G announced a new supply chain financing (SCF) program giving suppliers the ability to receive discounted payments for their P&G receivables. Fibria Celulose, a Brazilian supplier of kraft pulp, joined the program in 2013, but was re-evaluating the costs and benefits of participating in the SCF program in the summer of 2015. The firm's treasury group and its US country manager must decide whether to keep using the program and, if so, whether to keep their existing SCF banking relationship or start a new relationship with another global SCF bank.
Gillette: Cutting Prices to Regain Share
HBS Case #720-378

After losing market share to low-priced competitors such as Harry’s and Dollar Shave Club for several years, Gillette fought back by launching new products and increasing advertising. When those efforts failed to stem the losses, Gillette decided to cut the prices on its razors and blades in April 2017. Bonnie Herzog, an equity analyst at Wells Fargo, must assess how the recently announced price cuts are likely to affect Gillette’s earnings and its parent company’s earnings (Procter & Gamble owns Gillette). As part of her analysis, Herzog must estimate the price elasticity of demand for Gillette’s razors and blades. The case contains scanner data which allows students to calculate both price elasticities for a sample of Gillette products, and sufficient data to estimate the financial impact.
This case explores the economic impact of a dramatic price cut and the wisdom of starting a price war with significantly smaller rivals offering lower-priced products. It was designed to teach students how to estimate price elasticities of demand, to draw inferences based on those estimates (i.e., how the price cut will affect sales and profitability), and to critique the estimation process (i.e., what might affect the validity of the estimates, etc.). 

Canadian Pacific's Bid for Norfolk Southern (Railroads)
HBS Case #216-057
Following weeks of speculation about a possible bid, Canadian Pacific (CP) made an unsolicited bid for Norfolk Southern (NS) on November 17, 2015. Norfolk Southern swiftly rejected the offer as well as a second offer made shortly thereafter.  Canadian Pacific then made a third offer on December 16th, in conjunction with activist investor William Ackman of Pershing Square, incorporating a “contingent value right” (CVR) security as part of the merger consideration.  As part of the offer, the bidders described the potential for substantial “pre-merger operational improvements” and “post-merger combination synergies” to justify the merger. Facing a complex offer and little time, NS CEO James Squires quickly needed to prepare his recommendation to the board of directors regarding whether to accept the offer or not.  In either case, he needed to provide an explanation for his decision.
Hapag-Lloyd: Complying with IMO 2020
HBS #220-003
A new environmental regulation known as IMO 2020 was creating what one industry analyst called "the biggest shakeup for the oil and shipping industries in decades." According to the new regulation, all ocean-going ships would have to limit their sulfur emissions by January 1, 2020. Senior leaders at Hapag-Lloyd, one of the world's largest shipping companies, were evaluating three ways their ships could comply with the new regulation: use low sulfur fuel, use high-sulfur fuel but install scrubbers to clean the exhaust, or convert ships to use liquid natural gas (LNG) as fuel. Each of the options had its advantages and disadvantages, and the most attractive option depended on not only the values of key parameters (e.g., future fuel prices and equipment costs), but also the strategies adopted by the owners of the other 60,000 ocean-going ships subject to the regulation.

This case explores the economic impact of a major new environmental regulation. It illustrates how discounted cash flow (DCF) analysis can be used to inform a critical business decision, and how the key inputs to a financial model and the preferred compliance option depended on what competing firms choose to do. The challenge of the case is to wrestle with, but not get paralyzed by, various sources of uncertainty in a high-stakes managerial decision.
Buffett's Bid for Media General's Newspapers
HBS Case #213-142

On May 12, 2012, Warren Buffett’s Berkshire Hathaway announced an offer to buy Media General’s (MEG) newspaper division for $142 million in cash and, under a separate agreement, provide debt financing to the struggling firm.  Reactions from investors and industry analysts varied greatly:  one called it a “great surprise”, another wondered if Buffett was investing with his heart rather than his head (he was a paperboy as a child), and a third said it was a “feat of financial engineering.”  Virtually all of them wondered what the “Oracle of Omaha” saw in the declining U.S. newspaper industry that others did not.  The question facing Media General’s CEO Marshall Morton was whether to accept the offer or not.  As the head of a highly leveraged company whose revenues had fallen 31% in the past four years, whose stock price was down more than 90% off its high, and whose falling profitability left it perilously close to violating key debt covenants, he had to move quickly.

FANUC Corporation: Reassessing the Firm's Governance and Financial Policies
HBS Case #216-042
In February 2015, Daniel Loeb (a US-based activist investor) announced his firm had a large investment in FANUC Corporation, a leading producer of industrial robots and software for machine tools.  Loeb was demanding that the Japanese firm change its financial and governance policies (e.g., distribute more cash, fix its “illogical” capital structure, and provide more information to shareholders).  FANUC’s CEO, Yoshiharu Inaba, and his board must decide if and how to respond. One the one hand, the firm had been very successful having built leading global market shares in each of its core divisions and profitability that exceeded what Goldman Sachs earned on a per person basis.  On the other hand, the Japanese government was calling for financial and governance reform as part of the prime minister’s recently-announced economic growth strategy known as “Abenomics”.  Although Inaba and his team had previously considered many of the proposed changes, the question was whether it was now time to actually make some of the changes.
Thomas Cook on the Brink
HBS Case #214075

Harriett Green faced a daunting set of business and financial challenges as the newly appointed CEO of Thomas Cook Group, the 171-year old UK travel services company.  The company had lost almost £600 million in the last three quarters and its stock price had fallen from 230 pence to a low of 8.8p in the past two years.  In just a few weeks, the United Kingdom’s Civil Aviation Authority (CAA) would review the company’s license to operate, competitors were publicly questioning the company’s viability in advertisements, and seasonal demands for working capital were about to peak.  With the company’s survival at stake, Green had to devise a turnaround plan that would not only return the company to financial health and stability but also ensure long term sustainability.  The turnaround plan had to address the company’s high cost structure, raise substantial new capital, fix the over-leveraged balance sheet, create a profitable growth strategy, and build a more effective organization and culture.  But achieving these financial and strategic objectives within the short time available was going to be a major challenge.  The turnaround challenge is to figure out what to do and in what order.

Modern Project Finance: A Casebook
Written as a guide to the dynamic and increasingly important field of project finance, this casebook provides detailed descriptions and analysis of 20 project-financed transactions. Other books describe what project finance is and how it works.  In this book, Benjamin Esty, of the Harvard Business School, brings his expertise to a collection of cases and notes that analyze how firms structure, value, and finance large capital investments.  Modern Project Finance not only serves as a valuable reference manual for experienced project finance professionals, it also provides an effective introduction to the practice of project finance for lawyers, bankers, government officials, and financial managers as well as students and educators.
Books
Journal Articles
Book Chapters
  • Esty, B. C. "Project Finance." Chap. D4 of Handbook of Modern Finance, edited by James Seward and Dennis Logue. New York: Warren, Gorham & Lamont, 2004. View Details
  • Esty, B. C. Comment on "Restructuring Bank Regulation." Restructuring Regulation and Financial Institutions, edited by J. R. Barth, R. D. Brumbaugh, and G. Yago, 79–84. Santa Monica, CA: Milken Institute Press, 2000. View Details
  • Baldwin, C. Y., and B. C. Esty. "Lessons from the Thrift Crisis." Chap. 2 in Financial Services: Perspectives and Challenges, edited by Samuel L. Hayes III, 35–64. Boston, MA: Harvard Business School Press, 1993. View Details
Working Papers
Cases and Teaching Materials
Other Publications and Materials
Teaching
Large-Scale Investment (LSI, MBA Elective Curriculum)
Large-Scale Investment (LSI) is a case-based course about project finance that is designed for second-year MBA students. Project finance involves the creation of a legally independent project company financed with nonrecourse debt for the purpose of investing in a single purpose industrial asset. In 2011, firms financed almost $400 billion worth of capital expenditures through project companies, an amount that has grown and will continue to grow rapidly in the years ahead. As the name implies, the course focuses primarily on large projects those costing $500 million or more because they provide a clear window on how managers make important structural decisions and how those decisions, in turn, affect firm value and performance. At the same time, large projects often encounter financial distress witness EuroTunnel, EuroDisney, Dabhol, and Iridium, yet are critical to economic growth and prosperity in both developed and developing markets.

The central theme of the course is that structure matters, which stands in sharp contrast to the neoclassical view of the firm as a black box production function and the assumption underlying Modigliani and Miller's first irrelevance proposition that financing and investment are separable and independent activities. Through this course, students learn how structure affects managerial incentives to create value and manage risk. Ultimately, students learn how to increase value through both investment and financing choices.
Keywords: Corporate Governance; Valuation; Capital Budgeting
Related Links: Introduction to the Large-Scale Investment (LSI) Course at Harvard Business School, An Overview of Project Finance and Infrastructure Finance--2009 Update
Finance II (MBA Required Curriculum)

This course builds on the foundation developed in Finance I, focusing on three sets of managerial decisions:

  • How to evaluate complex investments.
  • How to set and execute financial policies within a firm.
  • How to integrate the many financial decisions faced by firms.

The Finance II course is divided into four blocks of material:

  • Tools of financial analysis (credit market analysis, option pricing, valuation of interest tax shields, weighted average cost of capital)
  • Financial policy choices of firms (whether to finance with debt or equity, distributing cash to shareholders)
  • Financial market imperfections (costs of financial distress, transaction costs, information asymmetries, taxes, agency conflicts)
  • Deals and transactions (mergers and acquisitions, leveraged buyouts, hostile takeovers, initial public offerings)
Keywords: Finance
Related Link: HBS MBA Required Curriculum
Strategies for Value Creation (MBA Course)
SVC is a capstone course that integrates topics from finance, strategy, and leadership. It is intentionally cross-functional and designed to force integration at the end  of the MBA program.  Students develop a value creation mindset and learn that value creation is an important, but by no means only, corporate objective and a guiding principle for making a wide range of managerial decisions.  The goal is to give students the knowledge, skills, frameworks, and judgment needed to make good strategic, financial, and operating decisions. The course emphasizes the development of practical insights rather than formal theories--to understand the tools and concepts commonly used in organizations. Classes extend and refine the analytical tools covered in RC Finance 1, RC Finance 2, and RC Strategy; and apply value-based management techniques to a broad set of business decisions.

The key modules include:

  • Understanding Value Drivers
  • Creating Competitive Advantage (Profitability)
  • Sustaining Competitive Advantage (Sustainability)
  • Driving Profitable Growth (Growth)
  • Financing Profitable Growth

The course is appropriate for people interested in C-Suite positions in companies(CEO, CFO, COO), in advisory roles in investment banking or consulting, and in investing roles in private equity, venture capital, or hedge funds. 
MBA Required Curriculum—Strategy

The objective of this course is to help students develop the skills for formulating strategy. It provides an understanding of:

  • A firm's operative environment and how to sustain competitive advantage.
  • How to generate superior value for customers by designing the optimum configuration of the product mix and functional activities.
  • How to balance the opportunities and risks associated with dynamic and uncertain changes in industry attractiveness and competitive position.

Students learn to:

  • Develop a mastery of a body of analytical tools and the ability to take an integrative point of view.
  • Use these tools to perform in-depth analyses of industries and competitors, predict competitive behavior, and analyze how firms develop and sustain competitive advantage over time.

Particular attention is paid to competitive positioning; understanding comparative costs; and addressing issues such as cannibalization, network externalities, and globalization.

Overview
I created and teach a course called Strategies for Value Creation (SVC). It is designed to be a capstone course in the Elective Curriculum (EC or second year) that integrates and further develops concepts developed in several Required Curriculum (RC or first-year) courses: Strategy, Finance (Fin 2), and to a lesser extent Fin 1 and Leadership and Organizational Behavior. It is a 30-session, case-based course that is designed to provide students with the knowledge, skills, and judgment needed to make better investment, financing, and operating decisions. The goal is to see value creation as an important—but by no means the only—corporate objective and a guiding principle for making important business decisions.
Keywords: Corporate Strategy; Corporate Social Responsibility and Impact; Corporate Finance; Value Creation; Competitive Advantage; Competitive Strategy; Financial Management
Awards & Honors
Recognized as one of the top 20 bestselling case authors for the past five academic years (was #11 in 2019–2020) by The Case Centre out of more than 8,000 authors.
Recognized in 2014 as one of the top case writers over the past 40 years by The Case Centre (formerly the European Case Clearing House or ECCH).
Received the 2013–2014 Greenhill Award for Outstanding Faculty Service.
Received the 2012 HBS Student Association Faculty Teaching Award for exceptional contributions to the graduating class's HBS experience.
Received the 2012 Charles M. Williams Award for Excellence in Teaching.
Received the 2012 Trailblazer Award from the HBS African American Student Union and the African American Alumni Association for contributions to the Harvard community and the summer venture in management program (SVMP).
Received the 2007–2008 Greenhill Award for Outstanding Faculty Service in recognition of the work done to create the General Management Program (GMP) as well as teaching and scholarship.
Received the 2006–2007 Harvard Business School Apgar Award for Innovation in Teaching in recognition of curriculum in the newly created General Management Program (GMP).
Winner of the 2002 Best Paper Award at the Conference on International Corporate Governance for “Creditor Rights, Enforcement, and Debt Ownership Structure: Evidence from the Global Syndicated Loan Market” with William L. Megginson, sponsored by the Tuck Business School and the Journal of Financial and Quantitative Analysis.
Received the 2001 HBS Student Association Faculty Teaching Award for exceptional contributions to the graduating class's HBS experience.
Received the 1999 HBS Student Association Faculty Teaching Award for exceptional contributions to the graduating class's HBS experience.
Received the 1997 HBS Student Association Faculty Teaching Award for exceptional contributions to the graduating class's HBS experience.
Awarded Outstanding Paper on Financial Institutions at the 1996 Southern Finance Association Annual Meeting for “The Impact of Contingent Liability on Commercial Bank Risk Taking.”
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