Nokia Comes Out of the Forest

This is a comprehensive financing case that enables teams to practice presenting and negotiating a financing package for a corporate client. Nokia, a Finnish company, wants to raise funds in international capital markets to finance a major acquisition in the United States.  Its goal is to create a package that offers (a) the lowest cost, (b) the most safety, and (c) the most flexibility.  It has several financing alternatives that differ in terms of (a) currency of denomination, (b) maturity, (c) interest rate stability, (d) swap arrangements, and (d) non-economic considerations.

Six banks (your teams) are trying to get Nokia's business by presenting a financing alternative.  Each bank has a different strength and could possibly benefit from offering a joint package with at least one other bank.  Prior to discussions with Nokia, the team from each bank should consider its specialty so it can be a skilled negotiator and a strong partner.

The bank specialties are as follows:

• Bavaria Bank:  ("The Borg") DM and Swiss franc Eurobonds (strong underwriting and placement power); credit backup
• Banque Francaise: Eurodollar loans and facilities, Euronotes (syndication and trading) and multi-option facilities; commodity financing
• BavBankFP:  Swaps and hedges of all kinds (strongest in warehousing and matching counterparties), and structured notes
• Goldman Brothers: ("Klingons") U.S. commercial paper, U.S. private placements and public markets, and trade finance; M&A
• Metrobank (USA): ("Vulcans") Credit backup, syndicated domestic and Eurocredits and underwriting facilities, and trade finance
• Snobbibank (UK): ("Kardassians") Experience in the equity market and an ability to assemble financing packages and to match merger and acquisition partners (the only merchant bank)

Important issues to evaluate include (a) the appropriate debt-to-equity ratio, based in part on the company's operating leverage (b) finding debt and derivatives that help reduce interest rate risk and currency risk (taking into account the firm's business and competition), (c) use of interest rate and currency swaps, (d) constraints and imperfections of individual capital markets and imperfect linkages among capital markets, including small-country capital controls, and (e) the evolution of the financing mix to suit the company's changing business.

Each team will be asked to present an 8-minute summary of its recommendations.
 
Copyright (c) 1998 Ian H. Giddy. For classroom purposes only.