________________________________________________________________ F E N E D U C A T O R : C O U R S E S , C A S E S , A N D T E A C H I N G A B S T R A C T S Vol. 5, No. 6: October 30, 2000 _________________________________________________________________ Publisher: Financial Economics Network a division of Social Science Electronic Publishing, Inc. (SSEP) and Social Science Research Network (SSRN) Editors: ROBERT F. BRUNER Distinguished Professor of Business Administration, University of Virginia Mailto:[email protected] PETER TUFANO Professor of Business Administration, Harvard Business School Mailto:[email protected] KAREN HOPPER WRUCK Associate Professor, The Ohio State University Mailto:[email protected] Copyright: SSEP, Inc. 2000. All rights reserved. Leading Social Science Research Delivered To Your Desktop http://www.SSRN.Com/ SEARCHING THE SSRN ELECTRONIC LIBRARY To search the entire SSRN Electronic Library by author, title, JEL code, or full text of the abstracts in our database, please visit http://papers.ssrn.com/ To browse all abstracts published in this journal, please visit http://www.ssrn.com/link/fen-educator.html REDISTRIBUTION Individual and professional subscriptions to the journal are for single users. It is a violation of copyright to redistribute this document electronically or otherwise without the explicit permission of Social Science Electronic Publishing, Inc. Site licenses for organizations are available by contacting Mailto:[email protected] SIGN OFF To stop delivery of one or more of the SSRN journals, write to Mailto:[email protected] Include the JOURNAL name or the NETWORK name or ALL in the subject line. If your address has changed, let us know by writing to Mailto:[email protected] ALIGNMENT If this document is misaligned, please set type face to a non-proportional font such as Courier 10. PAPER DOWNLOADS If you need assistance downloading papers from our web site, please contact Mailto:[email protected] T A B L E of C O N T E N T S _________________________________________________________________ "The Transformation of Enron: 1986-2000" SAMUEL E. BODILY University of Virginia Darden Graduate School of Business ROBERT F. BRUNER University of Virginia Darden Graduate School of Business "Iridium LLC" BENJAMIN C. ESTY Harvard Business School "Corporate Finance: Do beginning students get it?" JAMES A. GENTRY University of Illinois at Urbana-Champaign MICHAEL A. DYER University of Illinois at Urbana-Champaign PRESENT VALUE: AN INFORMAL COLUMN ON TEACHING "Digital-Friendly but Learning-Focused: Action and Readings for Excellent Teaching" ROBERT F. BRUNER University of Virginia Darden Graduate School of Business S S R N I N F O R M A T I O N _________________________________________________________________ * Administrative Information - Missing issues & change of address - Solicitation of Abstracts - Statement of Editorial Policy * Directors * Advisory Board * Subscription to SSRN Journals _________________________________________________________________ ACQUIRING PAPERS Download papers directly from the included web address or contact the author or other contact person directly. Provide an address to which the author or other contact person can send a paper copy and mention that you saw the abstract in SSRN. C A S E and T E A C H I N G P A P E R A B S T R A C T S _________________________________________________________________ "The Transformation of Enron: 1986-2000" BY: SAMUEL E. BODILY University of Virginia Darden Graduate School of Business ROBERT F. BRUNER University of Virginia Darden Graduate School of Business Document: Available in CD-ROM format from Darden Educational Materials Services. Paper ID: Darden Case No.: UVA-G-0559-M Date: 2000 Contact: SAMUEL E. BODILY Email: Mailto:[email protected] Postal: University of Virginia Darden Graduate School of Business Box 6550 Charlottesville, VA 22906-6550 USA Phone: 804-924-4813 Fax: 804-293-7677 Co-Auth: ROBERT F. BRUNER Email: Mailto:[email protected] Postal: University of Virginia Darden Graduate School of Business Box 6550 Charlottesville, VA 22906-6550 USA Requests For Copies: A free inspection copy of the case (in CD-ROM format only) and its teaching note (in paper format) may be requested by email or telephone to Darden Educational Materials Services at the coordinates below. Please mention FEN. Email: MAILTO:[email protected] Phone: (800) 246-3367 (toll-free in the U.S.); (804) 924-0902 (for inquiries from outside the U.S.) ABSTRACT: SUBJECT AREAS: real options; strategy; financial performance; corporate transformation. CASE SETTING: 2000, U.S. In mid-2000, observers remarked on Enron Corporation's unusual record of performance. This record included supernormal investment returns across the 1990s, bold redefinition of products and markets (in gas, electricity, and bandwidth), dramatic growth, and designation in five successive years by Fortune as the "most innovative firm" in the U.S. How had the firm transformed itself to achieve these results? What was the vision or set of ideas motivating this change? Was the transformation sustainable? This case was developed to stimulate student discussion of corporate transformation to achieve extraordinary results. Because of the large ideas and themes the case raises, it would be suitable for use in fields as diverse as finance, strategy, organization, and leadership. Specific learning objectives of the case include these: * Explore the role of optionality and real options thinking in setting strategy and the creation of corporate culture. Jeffrey Skilling, President and COO, advances the idea that "the purpose of the firm should be to gain alternatives." * Reflect on external drivers of large corporate transformation, and particularly the two drivers that emerge prominently in this case, deregulation and capital market discipline. This case illustrates an important microeconomic story of firm-level response to sudden overcapacity and price volatility. * Survey the dimensions of large corporate transformation, focusing especially on vision, strategy, culture, and organization. The case offers the insight that lasting transformation affects the entire firm in all dimensions, rather than small issues at the margin. The long-term sustainability of transformation and the limits to ongoing transformation efforts are questions that emerge as reflections on the transformation of the past 15 years. * Consider the influence of organization and culture upon the firm's ability to innovate. The case affords the insight that innovativeness is not merely a matter of strategy or corporate will, but also requires consistent culture, organization, and leadership. * Profile the attributes of the change leader. The case reveals a number of characteristics of Enron's change leaders - especially Jeffrey Skilling - in their own words. JEL Classification: G30 ______________________________ "Iridium LLC" BY: BENJAMIN C. ESTY Harvard Business School Paper ID: Case No.: 200-039; Teaching Note: 5-200-050 Date: July 18, 2000 Contact: BENJAMIN C. ESTY Email: Mailto:[email protected] Postal: Harvard Business School Morgan Hall 381 Soldiers Field Boston, MA 02163 USA Phone: 617-495-6159 Fax: 617-496-8443 Paper Requests: To receive a copy, please contact the author directly. ABSTRACT: SUBJECT AREAS: project finance, financial strategy and execution, valuation analysis, corporate governance, global investment CASE SETTING: August 1999, telecommunications, $5.5 billion investment, $6 billion projected revenue This case analyzes the demise of Iridium LLC, one of the largest private-sector projects in corporate history. The satellite communications company declared bankruptcy on August 13, 1999, and is now in the process of being liquidated under the auspices of the US Bankruptcy Court. Despite almost $6 billion of investment, the assets appear to be worth less than $50 million. The first half of the case describes Iridium's creation, development, and commercial launch, and gives students an opportunity to critique the vision behind this project and estimate its value using discounted cash flow analysis. The second half of the case focuses on Iridium's financial strategy and execution. In particular, the case describes Iridium's target debt-to-total book capitalization ratio of 60%, the various kinds of capital Iridium used (secured bank debt, guaranteed bank debt, zero coupon bonds, cash pay notes, etc.), and the sequence in which it issue them. Although this post mortem analysis is intended to help students understand the relevant issues in financing large, greenfield projects, the lessons on financial strategy and execution readily extend beyond the realm of large projects. The case has four pedagogical objectives. First, it illustrates the financial strategy and execution of a very large, greenfield project. The case helps students understand why project sponsors select highly-leveraged capital structures, why they use specific types of capital (bank debt vs. public notes), and why they raise capital in the sequence they do. This analysis forces students to confront the "capital structure puzzle" yet the setting differs from other attempts to differentiate among various capital structure theories because Iridium is a start-up venture that is less affected by prior financing decisions or past performance. Second, the case illustrates not only the benefits of using project finance for high-risk projects, but also the dangers of using project finance for high-technology projects.