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  1. 1. NORTHWESTERN UNIVERSITY KELLOGG SCHOOL OF MANAGEMENT WALL STREET, HEDGE FUNDS AND PRIVATE EQUITY (LBO) FUNDS Evening Course at Jacobs Center Spring Quarter 2006 FINC-931 Professor: David Stowell E-mail: Telephone: 847 441-0649 (home); 847-467-0291 (office) Office: # 447 Jacobs Center COURSE DESCRIPTION This course focuses on the activities of private equity (LBO) funds and hedge funds, their influence on corporate decision-making and corporate measures that are taken to counter threats and exploit opportunities represented by these investors. Competition and cooperation between investment banks, LBO funds and hedge funds will also be analyzed. In addition, the course reviews innovative equity, debt and convertible transactions, with a particular focus on hedge fund investing and hedging strategies in relation to these securities. Three senior guest lecturers will represent the perspectives of investment banks, hedge funds and LBO funds. REQUIRED TEXT No text. There will be a case packet containing required reading material and additional material will be posted on Blackboard. GRADING 1. Class participation (20% weighting) Classroom comments and questions should demonstrate knowledge of the topic being discussed and should facilitate learning for the entire class. Preparation for and participation in case discussions is particularly important. 2. Group presentation to the class on weekly developments in the private equity and hedge fund markets (20% weighting) 3. Group blackboard posting on a key hedge fund strategy (20% weighting)
  2. 2. 4. Mid-term paper focusing on Refco or Albertsons (20% weighting) 5. Final paper focusing on Nalco (20% weighting) SUMMARY COURSE OUTLINE Class #1 Overview of Hedge Funds March 27 Topics: (A) Organizational Structure and Objectives (B) Hedge Fund Activities Readings: Hedge Funds Overview-Powerpoint Slides Hedge Fund Investment Strategies-Powerpoint Slides Market Masters-Bloomberg Don’t Fence in Hedge Funds-Business Week Class #2 Overview of Private Equity (LBO) Funds April 3 Topic: Private Equity Activities Readings: Private Equity (LBO) Funds-Powerpoint Slides The Great Global Buyout Bubble-The New York Times KKR: The Sequel-Fortune Class #3 Hedge Funds, LBO Funds and Investment Banks: Competition, Cooperation and Impact on Corporations April 10 Topics: (A) Hedge Funds and LBO Funds: impact on corporations and the securities industry (B) Sears and Kmart Merger: hedge fund ESL’s role Readings: Hedge Funds, LBO Funds and Investment Banks: Competition, Cooperation and Impact on Corporations-Powerpoint Slides “Kmart, Sears and ESL: How a Hedge Fund Became one of the World’s Largest Retailers”-Case Study The New Raiders-Business Week
  3. 3. Class #4 Hedge Funds, LBO Funds and Investment Banks: Corporate Opportunities and Threats April 17 Group blackboard posting on a key hedge fund strategy due Topics: (A) Pershing Square’s relationship with McDonald’s (B) Corporate strategies to deal with investment banks, hedge funds and LBO funds Readings: “Hamburger Hedging: Pershing Square’s Investment in McDonald’s”- Case Study Behind the Rot at Refco-Bloomberg Cerberus Among Buyers of Albertsons-Hedgeworld Class #5 LBO Funds: Key Role in the M&A Market April 24 Topics: (A) Overview of recent corporate M&A transactions with LBO Funds (B) Guest lecturer from JP Morgan: David Adler, Head of Financial Sponsor M&A Group Readings: JP Morgan presentation (to be provided in class) After TDC, It’s a New Playbook-WSJ LBOs Achieve Wider Acceptance as Stable Firms Become Targets-WSJ Class #6 Alternative Investments: Private Equity, Real Assets and Absolute Return May 1 Mid-term paper on Refco or Albertson Due Topics: (A) Guest lecturer from Goldman Sachs: Rich Friedman, Head of Merchant Banking Division and Principal Investments Area (B) Analysis of alternative investments industry Readings: Goldman Sachs presentation (to be provided in class) The Yale Endowment Class #7 Private Equity (LBO Fund) Activities Today May 8 Topics: (A) Guest lecturer from Code Hennessy & Simmons: Tom Formolo, Partner and Head of Investments Committee (B) LBO M&A transaction Readings: Code Hennessy & Simmons presentation (to be provided in class) Private Equity: Recent Trends and Industry Outlook- Madison Dearborn Partners JP Morgan M&A- Case Study
  4. 4. Class #8 Investment Bank Services to LBO Funds and Hedge Funds May 12 Topics: (A) Prime Brokerage for Hedge Funds (B) Convertible, High Yield, Bridge Loan and Equity Underwriting for LBO Funds (C)M&A for LBO Funds and Hedge Funds Readings: Shark on Shark-IDD Riding the Hedge Fund Boom-Bloomberg A New Evolutionary Path-Risk Let’s Make a Deal-Fortune Class #9 Innovation on Wall Street May 15 Topics: (A) Convertible financings (B) Derivative transactions (C) Share repurchase strategies Readings: Convertibles-Powerpoint Slides Note on Convertible Arbitrage Equity Derivative Strategies for Corporations-Powerpoint Slides Cephalon, Inc.-Case Study Class #10 Global Financial Innovation and Review May 22 Final paper on Nalco due Topics: (A) New product development and fostering creativity (B) Course review Readings: Nikkei Put Warrants CLASSROOM POLICY Students should demonstrate respect for the professor and fellow students during the class period by refraining from distracting behavior such as disruptive eating, using laptops to surf the Web or check e-mail or holding side conversations. RECOMMENDED BOOKS TO FURTHER DEVELOP UNDERSTANDING OF TOPICS COVERED IN THIS COURSE (optional reading) Barbarians At the Gate -- Burrough and Heyler
  5. 5. When Genius Failed -- Roger Lowenstein Goldman Sachs: Culture of Success -- Endlich Tearing Down the Walls -- Langley