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4 case Studies. Each should be 3 pages long

Each case study will be due at the end of the week in which that case study is being assigned. There is a misconception that there are no “right” answers in case analysis. This is clearly not the case. There is a correct answer. It’s up to you to find it.

For a successful case write up, you will need the following:

1. Case papers should address the key issues that pertain to the financial strategy and then make clear recommendations with as much support as possible.

2. Papers should be
 no more than three double-spaced pages
 (not including exhibits) and include a cover page with your name, the date, the course number, and the title of the assignment (case name).

3. Papers should be organized into specific sections. For example, Background, Key Issues, Recommendations with support. Keep the Introduction short and don’t be so quick to jump to the recommendation. If the issues are wrong, the recommendation can’t be correct.

4. Late Papers will not be accepted.

5. Your grade will depend on how well you identify the issues and argue your recommendation.

6. All Footnotes and References Must use the APA Format.

7. The answer is not on the internet. You may use the internet for additional background and information, but I don’t care what the company actually did. All that really matters is in the case.

Remember that you only have three double-spaced pages for text. If you wish to use charts or financial analysis to support your recommendation, use an exhibit. Don’t waste space and put it in the text.

Teradyne(

On August 2nd, 2001, Teradyne, Inc. (NYSE: TER) of Westford, Massachusetts announced that it would be acquiring GenRad, Inc. (NYSE: GEN), a leading manufacturer of automatic test equipment and related software. Under the terms of the definitive agreement, each share of GenRad stock would be converted into .1733 shares of Teradyne stock. At the close of the New York Stock Exchange on August 1st, Teradyne stock was valued at $35.10 effectively valuing the acquisition at roughly $260 million including an assumption of $85 million in debt. Teradyne believed that the acquisition would initially be dilutive, but expected through synergies and an increase in demand, would become accretive in 2002. Scheduled to close in the fourth quarter of 2001, the acquisition was dependant on GenRad shareholder and government regulator approval.

By September 2001, the economic condition of the United States had deteriorated. Accelerated by the terrorist attack on New York’s World Trade Center Towers, American consumers further withdrew from traditional spending habits. During the month, Teradyne announced an unexpected third quarter loss of approximately $.32 per share. Previous analyst loss estimates were approximately $.11 per share.
Amidst the economic turmoil and financial performance, the company began to eliminate 1,000 employees and reduced salaries of up to 15% for higher paid employees.

Under the circumstances, the acquisition of GenRad may be in question. The board had to decide whether or not this was the right time to undertake such a complex integration and if the economy would recover in time to have the transaction contribute to earnings on schedule.

On the last trading day in September, Teradyne’s stock closed at $19.50 and GenRad finished the month closing at $3.27 per share.

Teradyne

Corporate Background

Teradyne manufactures automatic test equipment and related software for the electronics and communications industries. The company also is a leading manufacturer of connection systems used in the testing of electronic systems.

In December 2000, the company sold a controlling interest in its software testing business to an investor group. Teradyne remains a minority shareholder in the new company under the name Empirix.

The products designed and sold by Teradyne are used in the design and testing of a large number of semiconductor products including logic, memory, mixed signal, and integrated circuits.

Electronic manufacturers who assist in the design, inspection, and testing of circuit boards and other electronic assemblies primarily use the company’s circuit board test and inspection systems. Similar to semiconductor test systems, the circuit board test systems improve electronic product performance, increase product quality, shorten a manufacturers time to market, assist in manufacturing, minimize labor costs, and increase production yields.

The company also manufacturers broadband test systems used by the communications industry for Internet testing, customer service, and voice network maintenance.

Most of the company’s test systems are complex and require support both from the customer as well as Teradyne. Pricing for these systems can reach $4 million or above. As of the year ending December 2000, no single customer accounted for more than 10% of the company’s net revenue. The largest three customers accounted for 21% of revenue in 2000.

The distribution and sales of Teradyne’s products are conducted both inside and outside the United States. While the company has sales offices throughout North America, it also maintains sales and service offices throughout South East Asia, Europe, Taiwan, Japan, and Korea. Almost all of the company’s manufacturing is done in the United States, but a majority of the revenue comes from outside the U.S. International sales accounted for 54% of total revenue in 2000, 52% in 1999, and 46% in 1998.
Risk associated with international business tend to be country or region based and include political and economic instability, unfavorable trade policy, fund transfer problems, currency fluctuations, distribution, tax rates, and the ability to collect accounts receivable funds.

Teradyne has never paid a cash dividend and has maintained a policy to use earnings to finance expansion and growth.

Competition

Teradyne participates in a highly competitive environment that covers all of its business segments. Competitors are constantly improving products that may or may not be an improvement over Teradyne’s products. It is therefore essential that the company continue to invest heavily in itself to further improve and create new products for the marketplace.

Employees & Corporate Headquarters


As of December 2000, Teradyne employed approximately 10,200 persons. The company has never experienced any labor problems and does not have any employees that are members of a collective bargaining group.

Research and Development

For Teradyne to continue to compete in the marketplace, it needs to invest in both new product development and the improvement of its existing product base. In 2000, the company invested $300.9 million for new and existing products. Expenditures for research and development in 1999 and 1998 were approximately $228.6 million and $195.2 million. Research and development accounted for approximately 10% of total net revenue in 2000, 13% in 1999, and 13% in 1998.

Regulatory Issues

While the company has not experienced any significant costs associated with its compliance with numerous regulations designed to protect the environment, it cannot predict the future expenditures associated with regulatory compliance. Some of the environmental laws that impact the business include The Comprehensive Environmental Response, Compensation, and Liability Act, The Superfund Amendment and Reauthorization Act of 1986, The Occupational Safety and Health Act, The Clean Air Act, The Clean Water Act, The Resource Conservation and Recovery Act of 1976, and The Hazardous and Solid Waste Amendments of 1984.

GenRad

Corporate Background

GenRad, Inc. provides electronic manufacturing productivity solutions for contract and original equipment manufacturers of wireless and handheld devices, personal computers, business servers, DSL and other broadband switching and routing technologies, and other equipment devices used for the Internet and electronic commerce. While primarily located in the United States, GenRad also maintains facilities in Western Europe and Southeast Asia.

GenRad is organized into three business lines, each supported through its support and services division:

Process Solutions

The Process Solutions is based in Westford, Massachusetts and is comprised of seven lines of products primarily focusing on in-circuit test, x-ray test, and re-work solutions for electronic manufacturers. Products under this division range in price from $25,000 to $1,000,000.


Functional Solutions

Based in Westford, Massachusetts, the Functional Solutions division sells and markets functional test platforms for manufacturers of telecommunications, computers, and automobile electronics. Systems under this division typically sell for as little as $100,000 with a ceiling of approximately $500,000.


Diagnostic Solutions

GenRad, through its Manchester, UK facilities, provides customers with a wide array of diagnostic and information solutions tying design, manufacturing, and service into a single vision. This division accomplishes this goal through the its software and hardware solutions for the automotive and transportation customers, as well as other independent service providers.

Support and Services

Through its Support and Services Division, GenRad provides customers with on-site and remote support, maintenance programs, and programming and training to enable customers to optimize their GenRad hardware and software products.

Competition

GenRad participates in an intensely competitive industry. Competition from both domestic and foreign corporations exists across all business segments. Some of the competing companies are substantially larger than GenRad and have easier access to resources. Some of the company’s principal competitors are Agilent Technologies, Teradyne Corporation, Siemans A.G., and Bosch. GenRad, in order to overcome its competition, targets customers’ specific needs and carves out a niche rather than competes on a large, broad basis. The primary competitive factors are product performance, customer applications, engineering, customer support and service, and pricing. For GenRad to continue to compete in each of its product segments, research and development will play an ongoing critical component of the company’s strategy.

GenRad sells and supports its products primarily through an in-house sales and service team. Currently the company maintains sales offices in the United States, Mexico, the United Kingdom, Germany, France, Switzerland, Italy, Sweden, the Netherlands, Singapore, and Malaysia. The company will also contract with independent companies throughout the world to provide sales and service support in areas not directly covered by GenRad’s sales and support teams.

Employees & Corporate Headquarters


As of December 2000, GenRad employed 1,524 total employees including contracted employees. As a comparison, in the prior year, the company had 1,296 total employees. As of December 2000, no employee was a member of a collective bargaining agreement.

Customer Base

GenRad primarily targets and delivers products and services to original equipment manufacturers of electronics, electronic components and peripherals, contract electronics manufacturers, and transportation and automotive companies. While these industries make up the largest share of the company’s sales, other smaller manufacturers are also focused on for future sales.

One of GenRad’s primary customers is Ford Motor Company providing the automotive manufacturer with diagnostic equipment to assist Ford’s dealers with the problem testing of electrical systems in Ford vehicles. At year-end December 2000, Ford accounted for approximately 22% of consolidated accounts receivable. For the years ending 1998, 1999, and 2000, the Ford business accounted for approximately 11%, 31%, and 20% of consolidated revenues.

Research and Development

One of the keys to GenRad’s continued success is the development of new products and the improvement of existing products on the market. Most expenditures in research and development are primarily associated with the hiring of staff and the improvements in software and hardware in all of the company’s product segments. In 2000, the company spent approximately $29.0 million in research and development. Expenditures in 1999 and 1998 were $20.0 million and $19.0 million.

Expansion through Acquisition

GenRad had expanded through the years, utilizing both same store growth and acquisition. In April 2000, the company purchased Autodiagnos AB, an automotive aftermarket diagnostic software and equipment vender based in Stockholm, Sweden with offices in England, the Netherlands, Germany, and the United States. For substantially all of the outstanding stock, GenRad paid $26.7 million in cash and included the assumption of $6.0 million in debt. Legal and accounting expenditures for the transaction totaled $1.3 million.

Earlier in March 2000, the company acquired the assets of Nicolet Imaging Systems and the outstanding stock of Sierra Research Technology located in California and Massachusetts for approximately $40 million in cash. The transaction enabled the company to expand its x-ray inspection technologies and its repair/re-work equipment business.

In April 1998, GenRad purchased certain assets of the Manufacturing Execution Systems business of Valstar Systems Limited of Aberdeen, Scotland for $3.2 million in cash including approximately $0.2 million in acquisition costs.

Conclusion

With the stock market correction and the uncertainty of the immediate future of the United States and global economy, an acquisition of GenRad at this time may not seem appropriate. However, it may prove the key time to invest as interest rates continue to fall and stock prices remain suppressed. With the close looming in the near future, management had to decide on the fate of the deal before it was legally obligated to go through with the transaction.

Exhibit 1

GenRad, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS





YEARS ENDED DECEMBER 30,2000, JANUARY1, 2000 AND JANUARY 2, 1999





(in thousands, except per share amounts)

2000

1999

1998

Revenue:

$

$

$

Products

275,480

232,362

159,290

Services

66,175

69,586

65,499

Total Revenue

341,655

301,948

224,789

Cost of revenue:

Products

157,257

124,114

80,112

Services

46,694

42,643

38,775

Total Cost of Revenue

203,951

166,757

118,877

Gross margin

137,704

135,191

105,912

Operating Expenses:

Selling, general and admin

80,723

63,216

67,890

Research and development

28,956

20,042

18,962

amortization of acquisition-related intangible assets

7,269

2,831

1,948

Acquired in-process research and development

500

10,097

Restructuring and other charges

1,291

8,753

Loss from impairment of intangible assets

4,906

Arbitration settlement

7,650

Total operating Expenses

118,739

86,089

120,206

Operating income (loss)

18,965

49,102

-14,294

Other income(expense)

Interest income

196

212

399

Interest expense

-8,216

-1,374

-1,163

Other

165

-169

-541

Total other expense

855

-1131

-1,305

Income (loss) before income taxes

11,110

47,771

-15,599

Income tax benefit (provision)

10,537

-277

6,531

Net income (loss)

21,647

47,494

-9,068

Net income (loss) per share:

Basic

0,77

1,66

-0.32

Diluted

0,75

1,6

0

Weighted average shares outstanding:

Basic

28,205

28,669

28,003

Diluted

28,731

29,683

28,003

Exhibit 2

GenRad, Inc.

CONSOLIDATED BALANCE SHEETS





DECEMBER 30,200 AND JANUARY 1,2000





(IN THOUSANDS, EXCEPT PER SHAE AMOUNTS)

2000

1999

Assets



$

$

Current assets:

Cash and equivalents

8,321

6,951

accounts receivable, less allowance of $828 and $ 1,487

114,355

81,276

Inventories

65,551

49,068

Deferred tax assets

12,781

Other current assets

8,445

8,228

Total current assets

209,453

145,523

Property and equipment, net

47,620

43,194

Deferred tax assets

18,410

19,868

Intangible assets, net

91,497

38,686

Other assets

2,625

1,368

Total assets

3,699,605

248,639

Liabilities and Stockholders’ Equity

Current liabilities:

Trade accounts payable

21,427

21,841

Accrued liabilities

11,779

5,921

Deferred revenue

10,185

9,388

Accrued compensation and employee benefits

10,645

6,750

Accrued income taxes

2,987

3,760

Current portion of long-term debt

48,590

2,353

Total current liabilities

105,613

50,013

Long-term liabilities:

Long-term debt

45,050

3,653

Accrued pensions and benefits

8,999

9,175

Lease costs of excess facilities

3,922

Deferred revenue

1,232

1,005

Deferred tax liabilities

3,412

Other long-term liabilities

4,542

4,036

Total long term liabilities

63,235

21,791

Total liabilities

168,848

71,804

Stockholders’ Equity:

Common Stock

30,394

29,877

additional paid-in capital

225,738

221,854

Treasury stock

-31,292

-29,017

Accumulated deficit

-22,419

-44,066

Accumulated other comprehensive loss

-1,664

-1,813

Total stockholders’ equity

200,757

176,835

Total liabilities and stockholders’ equity

369,605

248,639

Exhibit 3

GenRad, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS





YEARS ENDED DECEMBER 30,2000, JANUARY1, 2000 AND JANUARY 2, 1999





(in thousands)

















2000

1999

1998









Operating activities:

$

$

$

Net Income (loss)

21,647

47,494

-9,068

Adjustments

Depreciation and amortization

25,544

14,928

15,312

Allowances for Acct rec. and inv.

8,260

-3,875

1,520

Stock-based compensation

551

590

639

(Gain) loss on disposal of prop. And eqp.

878

116

-281

Deferred income tax benefit

-11,975

-4,500

-7,500

Acquired in process research and development

500

10,097

Restructuring and other non-recurring charges

1,291

16,403

Loss from impairment of intangible assets

4,906

Increase (decrease) in operating assets and liabilities

Account Receivables

-27,961

-17,386

10,257

Inventory

-17,338

-13,289

-4,120

Other Current Assets

605

-1,159

1,147

Account payable

-2,521

11,425

-2,951

Accrued liabilities

3,896

-10,400

-153

Deferred revenue

1,262

2,705

1,318

Accrued Compensation and employee benefits

-837

-1,602

-6,260

Other Current Assets

-1,327

-1,158

-2,335

Net cash provided by operating activities

2,745

23,889

28,931

Investing Activities:

Purchases of property and equipment

-18,255

-16,241

-15,157

Purchase of subsidiaries, net of cash acquired

-69,729

-490

-4,178

Development of intangible assets

-4,251

-4,886

-6,645

Net Cash used in investing activities

-92,235

-21,617

-25,980

Financing Activities:

Purchases from credit facility,net

87,534

-2,341

-2,433

Proceeds from employee stock plans

2,681

10,154

6,633

Purchase of treasury stock

-2,275

-18,716

-14,958

Net Cash provided by (used in) financing activities

87,940

-10,903

-10,758

Effects of exchange rates on cash

2,920

2,584

-1,078

Increase (decrease) in operating assets and liabilities

e) in cash and equivalents

1,370

-6,047

-8,885

Cash and cash equivalents at beginning of the year

6,951

12,998

21,883

Cash and cash equivalents at end of the year

8,321

6,951

12,998

Exhibit 4

GenRad, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





YEARS ENDED DECEMBER 30,2000, JANUARY1, 2000 AND JANUARY 2, 1999









2000

1999











Inventories:

$

$

Raw materials

22,704

13,247

Work in process

31,378

17,891

Finished goods

11,469

17,930

65,551

49,068

Other Current assets:

Prepaid expenses

4,804

4,957

Other current assets

3,641

3,271

8,445

8,228

Property and equipment:

Leasehold improvements

14,376

13,738

Machinery and equipment

69,408

58,748

Service parts

17,381

12,459

101,165

84,495

Accumulated depreciation

-53,545

-41,751

47,620

43,194

Intangible Assets

Goodwill

50,932

22,311

Capitalized and purchased Comp Software

15,486

11,244

Developed Technology

22,510

11,370

Assembled workforce

4,741

1,444

Other intangible assets

21,946

3,182

115,615

49,551

Accumulated amortization

-24,118

-10,865

91,497

38,686

Accrued pension and benefits:

Accrued U.S. pension

1,634

1,795

Accrued foreign pension

4,420

4,526

Accrued postretirement benefit

2,945

2,854

8,999

9,175

Exhibit 5

Teradyne Inc.

ASSETS & LIABILITIES



DECEMBER 31, 2000 AND 1999











2000

1999

ASSETS

$

$

Current Assets

Cash and eq.

242,421

181,345

Marketable Sec.

60,154

66,316

Acct. Rec.

420,040

296,159

Inventories:

Parts

318,790

123,300

Assembled in process

159,123

145,393

Finished Goods

34,650

512,563

268,693

Deferred tax assets

93,958

49,716

Prepayments and other cur. Assets

48,698

45,458

Total current assets:

1,377,834

907,687

Property, plant, and equip.

Land

54,774

41,774

Buildings and improvements

293,124

238,136

Machinery and equipment

831,159

692,383

Construction in progress

75,520

9,693

Total

1,254,957

981,986

Less: Accumulated Dep.

-521,171

-484,247

Net Property,plant and equipment

733,786

497,739

Marketable Securities

161,848

139,752

Other assets

82,400

23,035

Total assets

2,355,868

1,568,213

LIABILITIES

Current Liabilities:

Notes Payable

7,389

8,221

Current portion of long-term debt

169

4,659

Accounts Payable

153,897

104,335

Accrued Employees compensation

158,817

117,314

Deferred revenue and customer adv.

183,465

60,096

Other accrued liabilities

86,637

66,223

Accrued income taxes

28,914

31,478

Total current liabilities

619,288

392,326

Deferred tax liabilities

21,257

13,907

Long-term debt

8,352

8,948

Total liabilities

648,897

415,181

Exhibit 6

Teradyne Inc.

SHAREHOLDER’S EQUITY

Common Stock (0.125$ par value)

21,570

21,290

Additional paid-in capital

334,241

234,198

Retained Earnings

1,351,160

879,544

Total Shareholder’s equity

1,706,971

1,153,032

Total liabilities and shareholder’s eq.

2,355,868

1,568,213

Exhibit 7

Teradyne Inc.

CONSOLIDATED STATEMENTS OF INCOME

Years ended December 31,

2000

1999

1998

(In thousands except per share amounts)

$

$

$

Net Sales

Expenses

Cost of sales

1,669,699

1,047,752

947,174

Engineering and development

300,920

228,570

195,158

Selling and admin.

362,562

256,392

212,885

2,333,181

1,532,714

1,355,217

Income from operations



710,765

258,198

133,934

Interest and other income



30,724

17,307

13,514

Interest expense



-1,841

-1,656

-1,566





Income before income taxes



739,648

273,849

145,882

Provision for income taxes



221,894

82,155

43,765





Income before cumulative effect of chg. in acct pri.



517,754

191,694

102,117

Cumulative effect of chg. In acct. pri.



-64,138





Net Income



453,616

191,694

102,117





Income per share before cumulative effect of chg., in acct pri.



2.99

1.12

0.61





Cumulative effect of chg. in acct.



-0.37





Net Income per common share



2.62

1.12

0.61

Exhibit 8

Teradyne Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)







2000

1999

1998



$

$

$

Cash Flows from operating activities

453,616

191,694

102,117

Net Income

Adjustments to reconcile net income to net cash

Deprecation

99,929

85,279

75,351



Amortization

1,933

1,107

953

Charge for excess inventory

23,000

Deferred income tax benefit

-44,242

-4,101

-14,607

Other non-cash income tax benefit

-10,997

4,354

-804

Changes in operating assets and liabilities

Account rec.

-113,930

-76,856

81,630

Inventories

-235,319

-2,346

-16,990

Other assets

7,589

-24,576

-1,184

Accounts Payable

226,798

115,750

-18,530



Accrued income taxes

85,482

77,171

7,685

Net Cash provided by operating activities

470,859

367,476

238,621

Cash flows from investing activities:

Additions to prop, plant, and equipment

-235,189

-119,780

-119,457

Increase in equipment manufacturing

-63,053

-31,376

-44,983

Purchases of held to maturity marketable sec.

-409,180

-177,650

-20,000

Maturities of held to maturity marketable sec.

394,006

118,990

20,000

Purchases of available for sale marketable sec

-177,864

-204,824

-162,092

Proceeds from sales and Maturities

177,104

169,824

224,951



Cash acquired in acquisition

1,885

Net Cash used by investing activities

-312,291

-244,816

-101,581

Cash flows from financing activities:

Payments of long-term debt

-5,283

-1,333

-1,615



Issuance of common stock under stock option

55,263

82,323

26,579

Acquisition of treasury stock

-147,472

-207,819

-51,158

Net cash used by financing activities

-97,492

-126,829

-26,194

Increase(decrease) in cash and cash equ.

61,076

-4,169

110,846

181,345

185,514

74,668

Cash and cash eqi. At the end of the year

242,421

181,345

185,514

( (copyright 2001 – John D. Sullivan

This case was written to stimulate class discussion and analysis and is not a critique of an effective or ineffective management situation.

� “Teradyne Cuts 1,000 Jobs, Salaries, Confirms Forecast of Loss in Period.” The Wall Street Journal. September 14, 2001.

� Teradyne, Inc. Securities and Exchange Form 10-K. December 31, 2000.

� Teradyne, Inc. Securities and Exchange Form 10-K. December 31, 2000

� Teradyne, Inc. Securities and Exchange Form 10-K. December 31, 2000

� Teradyne, Inc. Securities and Exchange Form 10-K. December 31, 2000

� GenRad, Inc. Securities and Exchange Form 10-K. December 31, 2000

� GenRad, Inc. Securities and Exchange Form 10-K. December 31, 2000

� GenRad, Inc. Securities and Exchange Form 10-K. December 31, 2000

3

7

MedImmune(

MedImmune, Incorporated, a biotechnology company with five products on the market and a series of products in the pipeline, has considered expanding its operations and market power through the purchase of a smaller biotech firm that would compliment their existing product base.

In their search for a suitable candidate, the management of MedImmune began to target Aviron, a biopharmaceutical company based in Mountain View, California. While the company’s lead product, FluMist, helped Aviron generate $11.7 million in revenue for the first nine months of 2001, it reported a net loss of $89.2 million for the same period. The company’s goal is to become a leader in the discovery, development, manufacture, and marketing of vaccines that are safe, effective, and can be marketed to a large population.

While the acquisition looked like a fairly good strategic fit for MedImmune, the financial condition of the new biotechnology firm made a decision on an offer difficult to calculate. If they were to proceed, they would need to come up with a reasonable offer sooner rather than later.

Drug Cycles

For pharmaceutical and biotechnology companies to remain competitive, a continuous flow of new and improved drugs must be developed. Many companies start with a series of early possible drugs that have merit, but as research and clinical trials progress, many hopeful therapies are deemed ineffective and are either discarded or part of the research is used in other areas for possible other drugs.

Drugs are considered to enter “phases” of development as they progress from hypothesis to manufacturing. At the earliest stage of testing, products are in Phase 1 and Phase 2 clinical trials. These clinical trials generally involve the administration of the drug to a small number of patients to examine the safety, dosage, and to a lesser extent, efficacy. Once the product has passed through Phase 1 and Phase 2 clinical trials, the drug enters Phase 3 where efficacy is tested. On average, it takes between ten to twelve years to bring a drug to market and the cost, depending on the products complexity, can reach as high as $500 million.

MedImmune Background

Headquartered in Gaithersburg, Maryland, MedImmune presently has five products on the market and a wide portfolio of potential products in the research phase of development. The company uses its strength in advanced immunology and other areas of biology to target unmet needs in infectious diseases and patients suffering from immune deficiencies. The company also focuses on cancer treatment through its wholly owned subsidiary, MedImmune Oncology, inc. This subsidiary, formerly under the name Bioscience, Inc., was acquired in November 1999.

Synagis

Approved by the Food and Drug Administration in 1998 for marketing, Synagis is prescribed for pediatric patients for the prevention of serious lower respiratory tract disease caused by respiratory syncytial virus. Administrated by an injection, the drug is given once per month during anticipated times of disease prevalence.

CytoGam

To prevent cytomegalovirus in kidney, lung, liver, pancreas, and heart transplants, the company developed the intravenous drug CytoGam. Cytomegalovirus is a species specific herpes virus and usually is harmless. For those with immune deficiency system however, it may cause a fatal pneumonia.

With approximately 20,000 transplants in the United States each year, CytoGam has been shown through clinical studies to reduce cytomegalovirus by 56% in liver and 50% in kidney transplant patients.

In 1993, the company began selling and marketing the drug through its hospital sales force. By 2000, sales of CytoGam reached $36.5 million in the United States.
Sales of the drug may increase as the supply of organs increases.

RespiGam

Approved by the Food and Drug Administration in 1996, RespiGam is an intravenous drug used to treat respiratory syncytial virus for small children. The company believes that the drug is largely being replaced by Synagis.

Ethyol

To prevent renal toxicity associated with patients being repeatedly administrated with cisplatin for the treatment of ovarian cancer or non-small cell cancer, Ethyol acts as a cytoprotective agent. Ethyol was initially approved by the Food and Drug Administration in 1995 for the treatment of patients with ovarian cancer.

NeuTrexin

Approved in the United States and Canada in 1993, NeuTrexin is most commonly used as an anti-cancer agent as a treatment for Pneumocystis carinii pneumonia, a condition also experienced by patients that suffer from AIDS. However, due to the rapid improvement in the treatment of AIDS through new and improved drugs, the company has seen a slow decline in the use of NeuTrexin for AIDS patients.

In 1994, the European Union approved the use of NeuTrexin for patients suffering from Pneumocystis carinii pneumonia with compromised immune systems.

Products Under Development

The company has a long line of products under development. A list of these products is listed in Exhibit 1.

Manufacturing

MedImmune’s manufacturing facility is located in Frederick, Maryland and contains a large cell culture production area for the manufacture of products such as Synagis and MEDI-507, if it clears clinical trials and FDA approval. The company also maintains a small manufacturing facility in Nijmegan, the Netherlands.

Marketing

To market and sell the company’s line of products, MedImmune employs 240 people dedicated to the United States with approximately 50 representatives covering 500 hospitals specializing in transplantation, pediatric, or neonatal care. These sales reps concentrate on the promotion of CytoGam, RespiGam, and Synagis. About 90 sales and marketing representatives cover the top 10,000 hospitals in the United States promoting Synagis and RespiGam. Other representatives that specialize in oncology and immunology market products such as Ethyol to physicians practicing in cancer treatment centers, large hospitals, and private practices.

MedImmune also utilizes Abbott labs’ Ross Products division to co-promote its products in the United States. Ross Products employs roughly 500 sales representatives and promotes Synagis to 27,000 office-based pediatricians and 6,000 birth hospitals.

Sales made outside the United States are done through distributors. Abbot serves as the company’s exclusive distribution company for Synagis. For Europe, Scherico sells and markets Ethyol. Other products such as CytoGam, Hexalen, NeuTrexin, and RespitGam were marketed and sold by various smaller distribution companies.

Employee Base

At year-end 2000, the company maintained a good relationship with its 790 full time employees.

Government Regulation

The research, development, and marketing of pharmaceuticals are subject to regulations set forth by the United States and other countries. In the United States, all drugs must be approved by the Food and Drug Administration and fall under several statutes and regulations including the Food, Drug and Cosmetics Act and the Public Health Service Act. The Food and Drug Administration also has the right to revoke product licenses.

To encourage research into areas of rare disease, the United States government enacted the Orphan Drug Act. Because the financial costs are typically so high to develop new drugs, many of these companies were searching for cures to mass disease rather than disease populations with less than 200,000 persons. Under this act, any company that receives Food and Drug Administration approval can potentially provide the company with market exclusivity for seven years. In addition, the company will receive tax credits up to 50% for qualified clinical research in these areas and the opportunity for clinical research grants.

Aviron Background

Aviron is a biopharmaceutical company that concentrates its efforts on the prevention of disease through innovative and cutting edge vaccine technology. The company’s lead product for development and commercialization is FluMist, a live virus vaccine delivered to the patient as a nasal mist for the prevention of influenza. Research focuses on vaccine development programs that are based on producing weakened live vaccines and on its genetic engineering technologies. Weakened live virus vaccines have had a strong history in preventing disease such as smallpox, polio, measles, mumps, rubella, and chicken pox.

FluMist

FluMist, Aviron’s primary product, has undergone and continues to undergo clinical trials. Many of these trials are coordinated with the National Institute of Health investigators. FluMist has been tested in 24,000 healthy children and adults and has been generally shown to provide a protection against influenza. Typical side effects of the treatment were sore throat, nasal decongestion, and a slight fever.

The Biologics License Application, or BLA, for frozen FluMist was submitted to the United States Food and Drug Administration in October 2000. In September 2001, the FDA requested additional information regarding clinical and manufacturing data from the company.

PIV-3

PIV-3 is a common childhood respiratory virus that causes croup, cough, fever and pneumonia. For children in the United States, more than 60% are infected by the age of two and 80% of those who contract the disease do so by age four. Aviron is presently engaged in the research and development of a vaccine to treat this disease.

CMV

A member of the herpes virus family, CMV infections can result in mild symptoms such as a sore throat, headache, fatigue and swollen glands. In more drastic cases of infection, CMV can diminish the strength of the immune system and can often be found in patients with AIDS, cancer, and transplant patients.

Conclusion

The board of MedImmune believed that Aviron was a good strategic fit but didn’t know what to offer. While the company had some attractive features, it still lacked positive earnings and cash flow to generate a value. They didn’t want to insult the management of Aviron with a low offer, but also felt the pressure to offer an appropriate price. It had been their experience that a purchase like this one was better done as a friendly transaction.

Exhibit 1

MedImmune

Products Under Development

Product

Indication

Synais RSV Marketed

Prevention of RSV disease

CytoGam Marketed

Prophylaxis of cytomegalovirus

RespiGam Marketed

Prevention of serious RSV

Ethyol Marketed

Reduction of cumulative renal toxicity

Ethyol Marketed

Reduction of the incidence of severe xerostomia

NeuTrexin Marketed

Alternative treatment of Pneumocystis carinii pneumonia

Synagis RSV Phase 3

RSV disease in bone marrow transplant

Synagis RSV Phase 4

Prevention of RSV children under 2 years

Synagis RSV Phase 3

Children under 2 years with congenital heart disease

Ethyol Phase 3

Treatment of NSCLC

Ethyol Phase 2/3

Reduction in radiotherapy

Neutrexin Phase 3

Treatment of colorectal cancer

MEDI-507 Phase 1

Treatment of graft-versus-host disease

MEDI-507 Phase 2

Treatment of psoriasis

Ethyol Phase 2/3

Head and neck cancer

MEDI-491 Phase 1

Prevention of B19 parvovirus infection

UTI Vaccine Phase 2

Prevention of urinary tract

HPV Cervical Cancer

Prevention of cervical cancer

Vitaxin Anti Phase 1

Treatment of cancer

Numax Preclinical

Prevention of RSV disease

Exhibit 2

MedImmune

Stock Performance

2000

1999

High

Low

High

Low

First Quarter

76.25

43

22

14.33

Second Quarter

80.69

42

24.67

15

Third Quarter

86.13

57.75

40.21

22.96

Fourth Quarter

72.63

44.63

58.6

29.67

Year End Close

47.69

55.29

Exhibit 3

MedImmune

Product Sales

Product Sales (In Million)

2000

1999

Synagis

427

293

CytoGam

36.5

34.7

Ethyol

21.4

19.6

Other Products

10.9

9.5

Total

495.8

356.8

Exhibit 4

MedImmune

Total Assets

31-Dec-00

31-Dec-99

Assets

Cash

84,974

36,570

Marketable securities

406,455

214,750

Trade receivable, net

115,635

86,894

Inventory, net

46,633

31,777

Deferred tax assets

22,319

23,132

Other current assets

11,796

8,715

Total Current Assets

687,812

401,838

Property and equipment, net

86,383

87,452

Deferred tax assets, net

194,761

128,990

Marketable securities

34,825

19,074

Other assets

2,794

11,070

Total Assets

1,006,575

648,424

Exhibit 5

MedImmune

Liabilities

Liabilities

Accounts payable, trade

3,090

2,995

Accrued expenses

72,159

65,300

Product royalties payable

40,553

28,527

Deferred revenue

33,966

Other current liabilities

1,697

2,130

Total Current Liabilities

151,465

98,952

Long-term debt

9,595

10,366

Other liabilities

1,933

2,027

Total Liabilities

162,993

111,345

Exhibit 6

MedImmune

Statement of Operations

Revenues

2000

1999

Product sales

495,803

356,815

Other revenue

44,692

26,560

Total revenues

540,495

383,375

Costs and Expenses

Cost of sales

127,320

90,193

Research and development

66,296

59,565

Selling, administrative and general

157,330

139,389

Other operating expenses

9,231

17,409

Total expenses

360,177

306,556

Operating income (loss)

180,318

76,819

Exhibit 7

Aviron

Stock Performance

Year Ended December 31, 1999

First Quarter

26.75

17.50

Second Quarter

28.75

17.13

Third Quarter

34.06

21.00

Fourth Quarter

28.75

14.81

Year Ended December 31, 2000

First Quarter

54.38

15.00

Second Quarter

35.00

21.00

Third Quarter

59.00

27.56

Fourth Quarter

70.61

46.00

Exhibit 8

Aviron

Assets

31-Dec

1999

2000

Current Assets:

Cash and cash equivalents

28,081

64,662

Short-term investments

24,235

67,651

Accounts receivable

3,241

23,288

Inventory

2,082

4,264

Other current assets

1,009

2,691

Total current assets

58,648

162,556

Long-term investments

4,506

Property and equipment, net

25,635

27,707

Intangible assets, net

48,046

Deposits and other assets

7,411

5,924

Total Assets

91,694

248,739

Exhibit 9

Aviron

Liabilities

Liabilities and stockholders’ equity(deficit)



1999

2000

Current Liabilities:

Accounts payable

3,038

5,106

Accrued compensation

1,739

4,978

Accrued clinical trial costs

846

1,974

Accrued interest

1,438

695

Accrued expenses and other liabilities

6,591

7,654

Current portion of capital lease obligations

101

9

Current portion of long term obligations

2,680

5,945

Total current liabilities

16,433

26,361

Deferred rent

2,214

2,095

Deferred revenue

9,750

Capital lease obligations, less current portion

9

Long-term obligations, less current portion

112,657

89,947

Exhibit 10

Aviron

Stockholder Equity



1999

2000

Preferred stock

Common stock

17

25

Paid-in capital

143,822

394,012

Notes receivable

-83

-50

Deferred compensation

-96

Accumulated deficit

-183279

-273401

Total stockholders’ equity(deficit)

-39619

120,586

Total liabilities and stockholder’s equity

91,694

248,739

Exhibit 11

Aviron

Statement of Operations

Year Ended December 31

1998

1999

2000

Revenues:

Contract revenue and grants

745

22,232

32,242

Operating Expenses:

Research and development

46,583

68,121

80,521

Acquisition of in-process research and development

10,904

General, administrative and marketing

10,085

13,159

13,849

Total Operating Expenses

56,668

81,371

105,174

Loss from Operations

-55,923

-59,139

-73,032

Other Income(Expense)

Interest income

6,003

3,633

6,541

Interest expense

-4,882

-6,364

-11,020

Total Other Income(expense), net

1,121

-2,731

-4,479

Net Loss

-54,802

-61,870

-77,511

Exhibit 12

Aviron

Investments





Cost

Gross Unrealized Gains

Gross Unrealized Loses

Market Value

As of December 31, 1999

Corporate commercial paper

4,386

25

4,411

U.S. corporate notes

9,251

-139

9,112

U.S. corporate bonds

9,385

3

-40

9,348

U.S. government agency obligations

1,004

-13

991

Municipal bonds

1,810

-9

1,801

25,836

28

-201

25,663

As of December 31, 2000

Corporate commercial paper

72,894

26

-65

72,855

U.S. corporate bonds

23,189

45

-52

23,182

U.S. government agency obligations

2,000

12

2,012

98,083

83

-117

98,049

Exhibit 13

Aviron

Property and Equipment

1999

2000

Property and Equipment

Manufacturing equipment

5,978

6,551

Laboratory equipment

5,992

7,780

Computer equipment

3,113

4,219

Office equipment

1,070

1,202

Leasehold improvements

18,930

19,856

Construction in progress

280

3,704

35,363

43,312

Less accumulated depreciation and amortization

-9,728

-15,605

Net Property and Equipment

25,635

27,707

((copyright 2002 – John D. Sullivan

This case was written to stimulate class discussion and analysis and is not a critique of an effective or ineffective management situation.

� MedImmune, Inc. Securities and Exchange Form 10-K. December 30, 2000.

� MedImmune, Inc. Securities and Exchange Form 10-K. December 30, 2000.

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Willamette(

In the fall of 2000, Weyerhaeuser Company, one of the worlds largest integrated timber companies, made an offer to purchase Willamette Industries, also a large integrated timber company, for $48 per share in cash. After three days of consideration, the board of Willamette rejected Weyerhaeuser’s offer citing that the price, valued at $5.3 billion, did not accurately reflect the value of the company or its future growth potential. The immediate rejection, which many in the industry expected, placed Weyerhaeuser in the position of deciding whether or not to initiate a hostile takeover attempt.

After two weeks of consideration, Weyerhaeuser announced that it would launch a hostile takeover of the company settling on a price of $50 per share. For months, Willamette considered the offer with several rejections along the way and an announcement that it would purchase roughly ten million shares in a ongoing share repurchase program that would continue depending on stock price.

Finally, on January 2, 2002, Weyerhaeuser raised its bid to $55 per share and stated that it was as high as it could go. Two days later, Willamette Industries announced that the price was inadequate and that it was terminating its discussions regarding Weyerhaeuser’s acquisition offers.

Was the deal over? Weyerhaeuser knew that the synergies and potential fit were superb. Was it just a question of raising the price or not? Weyerhaeuser, if they really wanted Willamette, needed to decide whether or not to go back to the negotiation table and force a takeover with a price that both could accept.


Background

Willamette Industries

Established in 1906 in Dallas, Oregon, Willamette Valley Lumber company grew into one of the largest integrated timber companies in the world with 105 manufacturing facilities in 24 states, France, Ireland, and Mexico.


Business Segments

Paper

Willamette produces a wide range of paper and paper products for internal and external customers. For white paper, the company’s four paper mills manufacture 11% of the U.S. uncoated free sheet production and 8% of the country’s bleached hardwood market pulp.

Through six cut sheet facilities, the company also manufactures 23% of the nation’s communication paper and utilizes several brands including its private Willamette name brand.

The company also manufactures several brown paper products including linerboard, bag paper, and cardboard sheets for boxes. Willamette’s four bag plants produce 14% of the country’s paper bags.

Building Materials

The Building Material business segment is divided into four primary types of products: Lumber, Structural Panels, Composite Panels, and Engineered Wood Products.

Through the company’s nine sawmills, the lumber products are marketed through independent wholesalers and distributors throughout the United States. As of December 31, 2000, the company held approximately 2% of the country’s lumber production.

Plywood panels and oriented strand board are manufactured at one plant and account for approximately 8% and 3% of the US production of structural panels. Like lumber, these products are marketed through independent wholesalers and distributors throughout the United States.

Through four particleboard plants, the company manufactures approximately 14% of the US market. A smaller plant in France manufactures approximately 1% of European production. Three other plants produce medium density fiberboard and manufacture approximately 22% of the US market. These products are also sold and marketed through independent wholesalers and distributors.

The Engineered Wood Product segment has three primary products: Laminated beams, laminated veneer lumber, and I-joist products. Through two plants, the laminated beam production accounts for 24% of US production. Three laminated veneer plants produce nearly 11% of the market production and through two I-joist facilities, the company makes approximately 9% of the total US market production. These products are sold both in the domestic and international markets.

Timber Assets

Approximately 69% of Willamette’s long-term saw log needs come from the company’s 1,729,000 acres of timberland located in Louisiana, Texas, Arkansas, Oregon, Tennessee, Missouri, and the Carolinas. The balance of the company’s timber needs come from private timber sales in the open market.

Energy Consumption

The manufacturing of timber products, by its very nature, tends to consume a tremendous amount of energy. To cope with these costs, Willamette facilities are able to generate 61% of their energy needs through the burning of waste materials and the recycling of pulping liquors.

Employees

At year-end 2000, Willamette employed approximately 14,975 persons with nearly 45% of these employees represented by labor unions and collective bargaining agreements. One agreement with approximately 1,640 employees expired in 200 and was renegotiated.

The company has experienced very little turnover in the salary level positions. Approximately 46% of these employees have been with the company for at least twelve years.

Weyerhaeuser

Incorporated in 1900, Weyerhaeuser is one of the world’s largest integrated forest products companies with offices and or operations in 17 countries and an employee base of 47,244. The focus of the company has been to grow and harvest timber for the sale and distribution of forest products, and real estate development and construction.

The company is principally divided into four business segments: Timberlands, Wood Products, Pulp, Paper, & Packaging, and Real Estate and related assets.

Timberlands

Weyerhaeuser manages 5.9 million acres of company owned land and .5 million acres of leased land in North America. The timber in these acres produces mostly high quality lumber and related products for distribution in the United States and in the International markets. The company also has several renewable and long-term licenses for 31.6 million acres throughout Canada. The inventory of timber in these areas is approximately 588 million cunits.
To ensure a steady quality and quantity of timber, the company has an extensive planting of high quality trees and suppresses those species of tree that cannot be brought to market.

Wood Products

Weyerhaeuser produces and sells hardwood lumber, treated lumber, plywood and veneer, softwood lumber, engineered wood, and composite panels. These products are predominately by the company’s internal sales force.

Pulp, Paper, & Packaging

The company manufactures chemical wood pulp for distribution throughout the world, paper products that include both coated and uncoated papers, and containerboard sheets for packaging.

Real Estate and Related Assets

Through the company’s subsiary, Weyerhaeuser Real Estate Company, the company develops and constructs single family houses for sale including large planned communities.

Conclusion

Weyerhaeuser management knew the dangers of betting too much on synergies for valuation. There was just no way of knowing if the potential cost savings and efficiencies could be realized in the time necessary to ensure the transaction would add to earnings upon competition. However, it was also believed that the purchase would also make Weyerhaeuser a global timber giant and management desperately wanted to do the deal. The only question was whether or not $55 per share was really the most they could afford and if they could raise the offer based on updates to a discounted cash flow model using several discount rates from 12% to 15%.

Exhibit 1

Willamette

Income Statement

(in thousands)

2000

1999

1998

Net Sales

$4,651,761

$4,272,957

$3,880,249

Expenses

DeprAmort & Cost of Fee Timber

$314,999

$303,719

$371,141

Materials, Labor, & Other Operating

$3,414,686

$3,165,275

$3,006,572

Gross Profit

$922,076

$803,963

$502,536

Selling and Administration

$268,819

$253,694

$239,792

Other IncomeExpense

($19,737)

($11,710)

$2,029

Operating Earnings

$633,520

$538,559

$264,773

Interest Expense

$119,133

$125,284

$131,990

Earnings before Tax

$514,387

$413,275

$132,783

Income Tax

$169,500

$152,800

$43,800

Net Earnings

$344,887

$260,475

$88,983

Exhibit 2

Willamette

Financial Snapshot

(in thousands)

2000

1999

1998

Capital Expenditures

$398,888

$290,246

$441,839

Working Capital

$396,094

$457,471

$366,846

Long Term Debt

$1,542,926

$1,628,843

$1,821,083

Total Debt

$1,670,425

$1,645,716

$1,870,602

Total Assets

$5,117,670

$4,797,861

$4,697,668

Shares Outstanding

$109,417

$111,587

$110,981

Exhibit 3

Willamette

Assets

(in thousands)

2000

Current Assets

Cash

$24,284

AR

$459,591

Inventory

$473,788

Prepaid Expenses

$35,154

Total Current Assets

$992,817

Timber & Related Facilities

$1,014,285

Property, Plant, & Equip

$3,017,593

Other Assets

$92,975

Total Assets

$5,117,670

Exhibit 4

Willamette

Liabilities and Shareholder Equity

(in thousands)

2000

Current Liabilities

Current Portion of LT Debt

$5,499

Notes Payable

$122,000

AP

$253,292

Accrued Payroll

$85,084

Accrued Interest

$33,910

Other Accrued Expenses

$77,754

Accrued Income Tax

$19,184

Total Current Liabilities

$596,723

Deferred Income Tax

$568,273

Other Liabilities

$28,705

Long Term Debt

$1,542,926

Stockholder’s Equity

$54,709

Capital Surplus

$229,598

Retained Earnings

$2,096,736

Total Stockholders Equity

$2,381,043

Liabilities & Stockholder Equity

$5,117,670

Exhibit 5

Willamette

Quarterly Snapshot

(in thousands)

2000

Net

Gross

Sales

Profit

1st Quarter

$1,167,126

$224,163

2nd Quarter

$1,188,060

$240,358

3rd Quarter

$1,169,585

$226,052

4th Quarter

$1,126,990

$231,503

$4,657,761

$922,076

1999

Net

Gross

Sales

Profit

1st Quarter

$970,483

$141,942

2nd Quarter

$1,056,319

$195,757

3rd Quarter

$1,137,615

$239,780

4th Quarter

$1,108,540

$226,484

$4,272,957

$803,963

1998

Net

Gross

Sales

Profit

1st Quarter

$942,384

$120,761

2nd Quarter

$991,509

$125,578

3rd Quarter

$1,003,242

$148,476

4th Quarter

$943,114

$107,721

$3,880,249

$502,536

Exhibit 6

Willamette

Property, Plant, & Equipment

(in thousands)

2000

1999

Land

$48,436

$41,985

Buildings

$417,700

$380,967

Machinery & Equipment

$4,924,423

$4,569,273

Furniture & Fixtures

$96,597

$92,411

Leasehold Improvements

$8,023

$6,619

Construction in Progress

$236,950

$145,479

Total

$5,732,129

$5,236,734

Less Accumulated Depreciation

$2,714,536

$2,485,524

Net Property, Plant, & Equipment

$3,017,593

$2,751,210

((copyright 2002 – John D. Sullivan No part of this case study may be reproduced, stored in a manner for future retrieval or editing, or transmitted in any form without the copyright holder’s written permission.

This case was written to stimulate class discussion and analysis and is not a critique of an effective or ineffective management situation.

� Each cunit represents 100 cubic feat of solid timber.

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