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For courses in:

Finance Simulation Finance

Mergers and Acquisitions

M&A in Valuation
Negotiation

Wine Country General Management

Strategy

by Timothy A. Luehrman and W. Carl Kester

Harvard Business School
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Finance Simulation: M&A in Wine Country

In this multi-player simulation, students play the either Starshine or Bel Vino. Students review
role of the management team at one of three confidential information to determine value and set
publicly traded wine producers: Bel Vino, Starshine, or reservation prices before negotiating deal terms and
International Beverage. Starshine and Bel Vino consider a accepting or rejecting final offers.
merger-of-equals transaction while International The simulation is ideal for students who have had previous
Beverage considers acquiring exposure to the fundamentals of finance.

Finance Simulation: M&A in Wine Country

prepare analyze decide

changes to income balance cash flow WACC adjusted discount comparable comparable ratios and
operations statement sheet statements based DCF present rates + TV companies transactions growth rates
assumptions value

Bel Vino (you) Starshine International Beverage Chat Confidential Info

STOCK PRICE
Copy to Clipboard
Bel Vino $36.00
Starshine: $42.90

Intl. Bev.: $62.50

OPERATING ASSUMPTIONS

Increase in Domestic Revenues ($M) 2.0

PRICE PER SHARE
Increase in International Revenues ($M) 18.0
CALCULATIONS
Reduction in Cost of Goods Sold ($M/year) 0.0
Bel Vino
Reduction in Marketing Costs ($M/year) 0.0
$43
Reduction in Other SG&A ($M/year) 1.0

Reduction in Debt Collection Period (in Days Sales) 0.0

Reduction in Inventory (in Days COGS) 30.0

Increase in Accounts Payable (in Days COGS) 15.0

$0
Two Year Increase in Cash Spent on PP&E ($M) 0.0 Stock WACC APV
Price

Analyzing changes in operating assumptions helps students understand valuation.

Identifying Opportunities Each role is also shown confidential

for Value Creation
information about financial forecasts

Before the simulation begins, students are assigned and opportunities for improvement.
roles. All roles can view publicly available information Using all the available information, students
about each company such as financial statements consider the opportunities for value creation and
and analyst projections. select possible merger and acquisition targets.

hbsp.harvard.edu
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Finance Simulation: M&A in Wine Country

prepare analyze decide

make share accretion/ activate bids/

decisions exchange dilution bid history
calculator calculator

Chat Confidential Info

target Starshine
Acquiror Bel Vino

PER SHARE VALUATION

Starshine $42.90

Bel Vino $36.00

NUMBER OF SHARES CURRENTLY OUTSTANDING

Starshine 8,000,000
Bel Vino 10,000,000

MARKET VALUES OF EQUITY

Starshine 343.2
Bel Vino 360.0
Total Value of Combined Entity 703.2
Number of New Bel Vino Shares Issued 9,533,333.3

Offer 1,192 New Bel Vino Shares for Each Existing Starshine Share

Calculators help students decide the best terms for a deal.

Determining Value and Making and Evaluating Bids Understanding Stock

Setting Reservation Prices Market Reaction
Students begin the bidding and negotiation
Students have access to multiple process either face to face or using the built- Stock prices rise and fall in reaction to the formal
valuation models as they analyze the in “chat” capability. bidding process and simulate the stock market
n: M&A in Wine Country
value of their own company and the response to potential mergers and acquisitions.
company they have targeted for an
analyze
possible decides
deal. Changes in operating assumptions
Several calculators are available to
Fluctuations in share price directly affect the value
help determine the best terms for adjusted of a proposed comparable ratios and
balanceare immediatelycash
WACCflowbased DCF discount comparable
sheet reflected in the statements
valuation models. present rates
making and evaluating + TV
bids. companies dealtransactions growthhow
and students must consider rates
value
Using these tools, students set International bidding activity affects stock prices.
hine Beverage ÿ Share Exchange Calculator: Chat Confidential Info
confidential reservation prices for each target.
calculates the ratio of shares

exchanged in a merger STOCK PRICE

The valuation models include:
ÿ Accretion/Dilution Calculator: Bel Vino $36.00
ÿ WACC-based DCF calculates the effect of a deal
Starshine: $42.90
(Discounted Cash Flow) Analysis on earnings per share (EPS)
Intl. Bev.: $62.50
ÿ APV (Adjusted Present Value) ÿ Leverage Decision Calculator: calculates
($M) 2.0
financing requirements for The simulation
ÿ Key Ratios of Comparable PRICEends when
PER an offer CALCULATIONS
SHARE
is ($M) 18.0 acquisition
Companies is accepted. It is also possible for the simulation
($M/year) 0.0 Once students have negotiated the essential terms to end with no deal Bel Vino
ÿ Comparable Transactions
0.0 of a deal, they enter formal bids into the simulation. being reached. $43
M/year)

ar) 1.0

iod (in Days Sales) 0.0

COGS) 30.0
administration tools on next page ÿ
Days COGS) 15.0
$0
t on PP&E ($M) 0.0 Stock WACC APV
Price
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Administration Tools for Faculty

A comprehensive Facilitator's
Guide covers key learning objectives, including: Finance Simulation: M&A in Wine Country

class summary team results scenario setup

game Starshine Bel Vino Bel Vino Starshine stocks BV-SS SS-BV IB-BV IB-SS No

ÿ Comparing valuation methods, including details zopa zopa deal

prices
deal
prices
price
history
deals deals deals deals deals

WACC-based DCF Select a Team Team 1

(Discounted Cash Flow) analysis,

APV (Adjusted Present Value) and multiples Bel Vino Bel Vino

BV's reservation price of BV: $47.60 BV's reservation price of BV: $47.60
ÿ Identifying potential for value class
summary Completed deal price $52.97

creation in mergers and

SS's reservation price of BV: $57.53
IB's reservation price of BV: $55.00
acquisitions

ÿ Analyzing and forecasting possible Int. Bev Starshine

0 0
synergies

ÿ Selecting target companies

Graphs show the “zone of possible agreement” and completed deals.
ÿ Understanding the negotiation
process, outcomes, and the “zone of possible
agreement” (ZOPA)
Stock Price History
70

016026061CM
viewing simulation results
56

Results are available immediately for class review

42
and debrief. Summary results are provided for
the entire 28

87tc9u2d1oMrP
#
class and detailed results are available-
14
able for individual teams. Reservation
0
prices, stock prices, and other metrics are presented 123 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

in easy-to-read graphs suitable for classroom Bel Vino Starshine International Beverage

presentation.

nreP
lrcetynpcia
e.e
dd or
p
Graphs for each team show the link between stock price behavior and bid.

Product #3289 | Multi-player: 3 roles | Seat Time: approximately 90 minutes | Developed in partnership with Forio Business Simulations

Preview and Free Trial Access
Visit hbsp.harvard.edu
A Preview of the simulation is available
on our web site at hbsp.harvard.edu.
A Free Trial allows full access to the
entire simulation and is available to
Premium Educators on our web site.
also available
Finance Simulation: Blackstone/Celanese
By Nabil N. El-Hage and Timothy A. Luehrman
This simulation recreates the landmark
Premium Educator access is a free
acquisition of Celanese AG by the Blackstone
service for faculty at degree-granting
Group in 2003. Students take on the role of
institutions and allows access to
either company and conduct due diligence,
Educator Copies, Teaching Notes, establish deal terms, respond to bids and
Free Trials, course planning tools, counterbids, and consider the interests of
and special student pricing. other stakeholders. #3712

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