In the last class, we review the issues with valuation in emerging markets and consider the case for establishing a market for corporate control.

 

 

Assignment Sheet
Emerging Markets Finance
 

Class #15, Friday, December 9, 2005

Topic: The Market for Corporate Control

Case: Hostile Bid for Red October, HBS #296-084.

File: Red-October.xls

Assignment Questions:

1.   Why is Menatap Bank attempting the hostile takeover of  Red October?

2.   Is Red October "undervalued" at $5.00/share? 

3.   How would you estimate the value of Red October?  What models would you use?  What is your estimate of the value?

• How reliable and reasonable are the financial projections in Exhibit 8a?

• Do you agree with the estimate that Red October's cost of equity is 23%?

4.   What is the likely response of Red October's management to the offer of $9.00/share?  What would you do as management?

5.   If you were a shareholder, would you tender your shares?

6.   Was Russia ready for establishing a market for corporate control?

Note: The 1993 and 1994 income statements are calculated using an average ruble/US$ exchange rate quoted by the Central Bank of Russia. The exchange rate was Rbl 932 in 1993 and Rbl 2,202 in 1994.

      The 1993 and 1994 balance sheets were converted in US$ by dividing each figure (in Rubles) by the exchange rate offered by the Central Bank of Russia on December 31st of each year. The exchange rate was Rbl 1,247 on December 31, 1993 and Rbl 3,550 on December 31, 1994.