Benjamin C. Esty

Best-Selling Cases:  

  1) Eaton: Portfolio Transformation & Cost of Capital (HBS #221-006)
      > WACC theory & estimation, divisional vs corporate WACC, divestment
  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
  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) Airbnb: Stakeholder Capitalism Faces a Critical Test (HBS #221-050)
     > Shareholder vs stakeholder models; implementing a stakeholder model
  8) Gillette: Cutting Prices to Gain Share (HBS #720-378)
      > Price wars; Calculate price elasticities, positioning, vertical diff.
  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
11) Buffett's Bid for Media General (HBS #213-142)
     > Valuing decline-terminal values, disruption, financial distress
  

   MERGERS & ACQUISITIONS (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) TransDigm: Series on value creation/capture in roll-ups (HBS #720-422)
      > TransDigm in 2017: 5 Forces (buyer-supplier power), value creation
      > TransDigm-Arkwin: identifying, buying, and integrating acquisitions
      > TransDigm-Aerosonic: valuing an acquisition target in multiple ways
 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

CORPORATE FINANCE Cases: 

1) Pioneer Natural Resources--Variable Divs. (**New**, #224-001)
      > Capital allocation, payout policy, variable divs vs share repurchases
2) Vail Resorts: Responding to an Activist (**New**, #225-082)
      > Risk mgmt motivations & methods (climate risk, earnings volatility)
      > Responding to activist attacks/criticism; strategy & leadership
3) SpartanNash: The Amazon Warrants (A, HBS #222-022)
      > Buyer-seller negotiations, bargaining power, valuing warrants
      > Kornit Digital: The Amazon Warrants (C, HBS #222-045)
4) Generating Higher Value at IBM (HBS #215-058)
      > Payout policy, LT earnings guidance, driving change, leadership
5) Supply Chain Finance at P&G—US/Brazil (HBS #216-039)
      > Modern working capital mgmt, supply chains, banking, fin. Strategy
6) FANUC's Financial & Governance Policies—Japan (HBS #216-042)
      > Japanese corporate governance and macroeconomic growth policies
7) Hapag-Lloyd: Complying w/IMO 2020—Germany (HBS #220-003)
      > Environ. regulation, evaluating options & addressing uncertainty
8) Molycorp A: Financing Rare Earth Minerals (HBS #214-054)
      > Financial strategy, financing growth, DCF valuation, convertible debt

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) Seven & i Holdings: Assessing the Bids (**New**, HBS #225-108)
      > Bidding wars, Valuation done 4 ways, Gov't policy on M&A, Corp gov.
  3) Apax Partners -Trader Corp (**New**, HBS #225-032)
      > Private equity, value creation levers, due diligence, risk management 
  4) Valuing Snap After the IPO Quiet Period (A, HBS #218-095)
      > DCF valuation, analysts—affiliation bias, terminal value, IPO anomalies
  4) Valuing Celgene's CVR (HBS #221-031)
      > Incorporating sytematic & idiosyncratic risks in DCF valuation
      > Using contingent value rights (CVR's) to bridge valuaation gaps  
  5) 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
  6) Compass Maritime Services (HBS #211-014)
    > Valuation during the fin. crisis, regressions analysis, comparables
  7) 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

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) Graphic Packaging: Project Cowboy (*New*, HBS #223-009)
      > Competition in commodity businesses, assessing capacity expansion
      > Analyzing industry supply curves--strategic positioning/advantage
  3) Naked Wines: Profit vs. Growth (**NEW**, HBS #724-462)
      > Building a platform business; assessing profit vs. growth; racing
  4) Fresenius: Implementing A New Strategy (**NEW**, HBS #725-361)
      > Transformation, corp. strategy, strategy execution, value creation
  5) Bed Bath & Beyond: The New Strategy (HBS #221-062)
      > Creating & losing competitive adv.; Strategy formulation & execution
      ***A new teaching plan exists for this case
  6) Sandlands Vineyards (HBS #718-438)
      > Assessing market attractiveness & competitive advantage
      > Sustainability of advantage, vertical integration, judo econ.
  7) Bespoken Spirits: Disrupting Distilling (HBS #721-419)
      > Disruption, product vs. tech. business models, cost/dual advantage
      > Addressing uncertainty; using scenario analysis, entreprenuers
  8) TransDigm in 2017 (HBS #720-422) 
      > Value creation vs capture, bargaining power, business ethics
      > Creating and sustaining competitive advantage
  9) Gillette: Cutting Prices to Gain Share (HBS #720-378)
      > Price wars; calculating & using price elasticities of demand
      > Product positioning; vertical differentiation, detering entry
  10) De Beers:  Diamond Reselling Opportunity (HBS #717-430)
      > Strategy execution, cust. value, corporate scope, secondary mkt
      > Expanding from the "core" into adjacencies 
  11) De Beers:  Lightbox for Lab-Grown Diamonds (#719-408)
      > Strategy execution, disruption, commoditization, differentiation
  12) Tempur Sealy International (HBS #717-501)
      > Buyer vs. supplier bargaining power, dynamics, value capture
  13) SpartanNash: The Amazon Warrants (A, HBS #222-022)
      > Buyer-seller negotiations, supplier terms, valuing warrants
      > Buyer power; value creation or value extraction?

 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) Yellow Corp.: On Verge of Bankruptcy (**New**, HBS #224-028)
      > Stakeholders--Labor unions, employees, and shareholders
      > Leverage, bankruptcy, and distress costs; corporate and fin. strategy
  4) MTN: Unlocking Value & Driving Socioecon. Progress (HBS #722-371)
      > Strategy formulation and execution; Value creation and distribution
  5) Daniel Defense: After the Uvalde School Shooting (HBS #323-058)
      > Legal, ethical, and moral responsibility for criminal misuse of products
      > Gun ownership, rights, and control; corporate social responsibility
  6) 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

This case analyzes a proposed investment in the "circular economy" and illustrates how capacity additions affect industry dynamics (pricing, competitive positioning/advantage, and strategic incentives). It allows students to analyze competitors and learn important valuation lessons while assessing the risk-return trade-off of a major capital investment.

***A new teaching note is now available from HBS Publishing Group.

Nick Devlin faced a difficult strategic decision in October 2022. As the CEO of a UK-based subscription business connecting wine drinkers in the US, UK, and Australia with winemakers from around the world (which one journalist called the “Netflix of Wine”), he had to decide whether to change the firm’s strategy. For the past three years, the company had explicitly prioritized long-term growth over short-term profits. Through the Covid pandemic, the company had doubled in size (sales were £340 million in FY21) and the stock price had more than tripled (from 250 pence to 880 pence) as people consumed more wine at home. But the prospects had changed considerably as the pandemic subsided. During the first half of 2022, demand slowed, wine inventories rose, liquidity tightened, and the firm’s stock price plummeted by more than 90%. Was rapid growth still the right objective or should the company pivot towards profitability? Or was Devlin thinking about this decision incorrectly? Rather than choosing profit or growth, could he achieve both? If so, what would that strategy look like and how would he implement it?

This case has three pedagogical objectives. The first objective is to analyze the creation and implementation of a subscription business for premium wines through an online platform connecting winemakers and wine drinkers. The second objective is to assess whether this a “winner-take-all” or “winner-take-most” market because of significant economies of scale or powerful network effects. And finally, this case raises the question of whether there is a trade-off between profits and growth (the bottom line versus the top line), or whether this apparent “trade-off” is a false dichotomy. Could the firm achieve both profits and growth at the same time?

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.

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.

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.


***A new teaching note is available from HBS Publishing Group***

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)***

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.

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.

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.). 

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)

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.