Introduction xv
PART I: STRATEGY
Chapter 1: Articulating a Strategic Plan 3
Business Objectives 4
Strategic Themes 5
Long-Term Financial Model 7
Total Shareholder Return 10
Capital Allocation Strategies 14
Acquisition Strategies 15
Target Shareholders 17
Elevator Pitch 20
Plan Revisions 21
Chapter 2: Communicating and Achieving Alignment 23
Consistency and Transparency 24
Incentive Compensation Programs 25
Investor Alignment 28
Analyst Relations 29
Investor Presentations 31
Company Website 35
Social Media 36
Media Relations 37
Potential Media Pitfalls 38
Coordinating Communications 39
Interview Formats 39
Media Training 40
Note 42
Chapter 3: Assessing Enterprise Risks 43
Enterprise Risk Management 43
Implementation of ERM 44
Risk Identification 45
Risk Quantification 46
Major Exposures 47
Mitigation Strategies 50
Rewarded versus Unrewarded Risks 51
Governance of ERM 52
CFO’s Role in ERM 54
PART II: CAPITAL ALLOCATIONS
Chapter 4: Estimating the Cost of Capital 59
WACC Formula 59
Hurdle Rates 63
Risk Premiums 63
Acquisition Cost of Capital 65
Chapter 5: Prioritizing Capital Investments 67
Cash Flow Projections 67
Investment Budget 68
Evaluating Projects 71
Categorizing Projects 74
Monitoring Projects 75
Pension Fund Contributions 77
Chapter 6: Considering Dividends and Repurchases 79
Dividend Policy Alternatives 80
Dividend Policy Considerations 82
Special Dividends 85
Dividend Declarations 85
Repurchase Considerations 86
Open Market Programs 90
Tender Offers 92
Retaining Strategic Cash 92
Cash Investment Policies 95
PART III: MERGERS AND ACQUISITIONS
Chapter 7: Identifying Acquisition Candidates 99
Rationale for Acquisitions 99
Adjacent Spaces 100
Portfolio Approach 101
Business Sponsor 101
Patience and Flexibility 102
Strategic Purpose 102
Types of Acquisitions 103
Note 107
Chapter 8: Evaluating Acquisition Candidates 109
Valuation Methodologies 109
Standalone and Synergy Values 112
Pro Forma Analyses 113
Acquirer’s Stock Valuation 116
Risk Considerations 116
Chapter 9: Executing a Merger or Acquisition 119
Due Diligence 119
Business Plan 123
Financial Projections 124
Financing Plan 126
Price Negotiations 128
Contract Terms 129
Acquisition Integration 132
Note 134
Chapter 10: Executing Divestitures and Spinoffs 135
Divestiture Evaluations 135
Hiring Investment Bankers 136
Auction or Negotiated 137
Stock or Assets 139
Financing Conditions 139
Management Participation 140
Tax-Free Spinoffs 141
Split-Ups 142
Equity Carve-Outs 143
Chapter 11: Responding to Takeover Offers 145
Governance Policies 145
Reviewing an Offer 146
Conducting a Sale Process 148
Activist Shareholders 149
Going Private Transactions 149
PART IV: FUNDING
Chapter 12: Establishing Capital Structure Objectives 153
Leverage Targets 153
Leverage Criteria 155
Rating Agencies 157
Ratings Categories 158
Rating Agency Dialogues 160
Ratings Criteria 161
Informing Investors 162
Note 163
Chapter 13: Developing Financing Strategies 165
Financing Principles 165
Debt Financing 167
Equity Financing 171
Off Balance Sheet Financing 174
Debt Covenants 177
Debt Refinancings 179
Debt for Equity Swaps 180
Bankruptcy 182
Chapter 14: Ensuring Short-Term Liquidity 185
Bank Lines 185
Cash Planning 187
Contingency Planning 187
Liquidity Ratios 189
Working Capital Strategies 189
Trapped Cash 191
PART VI: ACCOUNTING AND CONTROLS
Chapter 15: Obtaining Long-Term Financing 193
Venture Capital 193
Private Equity 194
Initial Public Offering 195
Subsequent Equity Offerings 198
Term Loans 200
Syndicated Bank Loans 200
Investment Grade Securities 200
High Yield Securities 201
Strategic Alliances 202
Note 203
PART V: PERFORMANCE
Chapter 16: Driving Business Performance 207
