Schneider Square D
Didier Pineau-Valencienne (DPV), the CEO of Schneider SA, a leading French multinational company in the electrical distribution and industrial automation industry, is faced with the prospect of failure of joint venture discussions with the US company, Square D. The negotiations have already consumed two and one-half years. Mr. Pineau-Valencienne must decide whether to call off the discussion and go ahead with a tender offer for the US company, and if so, determine how much he should pay for Square D's equity. The case addresses issues of strategic fit between the bidder and the target, target performance, valuation (both base-case and synergies), financing decisions associated with the acquisition, and how the target's poison pills and anti-takeover amendments might affect outcomes in the battle for corporate control. An additional aspect of the case involves putting participants in the shoes of risk-arbitragers on Wall Street through a bidding game to make "buy-sell-hold" decisions. This involves forming judgements about Schneider's moves and Square D's counter moves, and DPV's (and their own) assessments of how high a price is likely to be paid if the acquisition goes through.
The case has been successfully used numerous times in both core corporate finance courses and advanced international corporate finance (or financial management) courses, as well as executive education at both the top and middle management levels. In MBA-level courses, the case is best positioned at about the end, since it is comprehensive. It ties together issues of strategic fit, valuation, financing, and corporate control and governance. It also works well as a vehicle for detailed student presentations focusing on the nuts and bolts of corporate valuation (derivation of free cash flows, cost of capital, unlevering and relevering betas, etc.) The use of the case for executive education should rely on a less quantitative approach, with the instructor taking participants through the valuation process in a somewhat condensed and hand-held manner, but instead focusing participants' energies on strategy, target performance and characteristics, and corporate governance.