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
Finance Simulation: M&A in Wine Country

In this multi-player simulation, students play either Starshine or Bel Vino. Students review
the role of the management team at one of confidential information to determine value and
three publicly traded wine producers: Bel Vino, set reservation prices before negotiating deal
Starshine, or International Beverage. Starshine and terms and accepting or rejecting final offers.
Bel Vino consider a merger-of-equals transaction The simulation is ideal for students who have had
while International Beverage considers acquiring previous 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
operating statement sheet statement 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 and opportunities for improvement.
are assigned roles. All roles can view Using all the available information,
publicly available information about students consider the opportunities
each company such as financial for value creation and select possible
statements and analyst projections. merger and acquisition targets.

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

prepare analyze decide

make share accretion/ active 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
Students have access to multiple negotiation process either face Stock prices rise and fall in reaction
valuation models as they analyze the to face or using the built-in “chat” to the formal bidding process and
on: M&A in Wine Country
value of their own company and the simulate the stock market response
capability.
company they have targeted for a to potential mergers and acquisitions.
analyze
possible deal. Changes in operating decide Several calculators are available to Fluctuations in share price directly
assumptions help determine the best terms for affect the value ofratios
a proposed
balance cashare
flowimmediately
WACC adjusted discount comparable comparable and
sheet
reflected instatement based DCF
the valuation models. making and evaluating
present rates + TV bids. companies transactions
deal and students growth rates
must consider how
value
Using these tools, students set bidding activity affects stock prices.
hine International Beverage ■■Share Exchange Calculator: Chat Confidential Info
confidential reservation prices for
calculates the ratio of shares
each target.
exchanged in a merger STOCK PRICE
The valuation models include: ■■Accretion/Dilution Calculator: Bel Vino $36.00
■■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

■■ APV (Adjusted Present Value) ■■  everage Decision Calculator:

L
($M) 2.0
calculates financing The simulation
PRICE PER ends when an offer
SHARE
Key Ratios of Comparable
■■
ues ($M) 18.0 requirements for acquisition
Companies CALCULATIONS
is accepted. It is also possible for
d ($M/year) 0.0 the simulation to end with no deal
Once students have negotiated the
■■ Comparable Transactions Bel Vino
$M/year) 0.0 essential terms of a deal, they enter being reached.
$43
formal bids into the simulation.
ear) 1.0

riod (in Days Sales) 0.0

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

A comprehensive Facilitator’s
Guide covers key learning objectives, Finance Simulation: M&A in Wine Country
including: class summary team results scenario setup

■■ Comparing valuation methods, game

details
Starshine
zopa
Bel Vino
zopa
Bel Vino
deal
prices
Starshine
deal
prices
stock
price
history
BV-SS
deals
SS-BV
deals
IB-BV
deals
IB-SS
deals
no
deals

including WACC-based DCF Select a Team Team 1

(Discounted Cash Flow) analysis,

APV (Adjusted Present Value) Bel Vino Bel Vino

and multiples

Identifying potential for value

BV’s reservation price of BV: $47.60 BV’s reservation price of BV: $47.60
■■
class summary Completed deal price $52.97

creation in mergers and

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

■■Analyzing and forecasting Int. Bev Starshine

possible synergies
0 0

■■ Selecting target companies

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

MC160620610
70

viewing simulation results

56

Results are available immediately for

42
class review and debrief. Summary

Product #M12978
results are provided for the entire 28

class and detailed results are avail- 14

able for individual teams. Reservation
0
prices, stock prices, and other metrics 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Printed on recycled paper.

are presented in easy-to-read graphs Bel Vino Starshine International Beverage

suitable for classroom presentation.

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

also available
Preview and Free Trial Access
Finance Simulation: Blackstone/Celanese
Visit hbsp.harvard.edu By Nabil N. El-Hage and Timothy A. Luehrman

This simulation recreates the landmark

A Preview of the simulation is available Premium Educator access is a free
acquisition of Celanese AG by the Blackstone
on our web site at hbsp.harvard.edu. 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,
A Free Trial allows full access to the Educator Copies, Teaching Notes, establish deal terms, respond to bids and
entire simulation and is available to Free Trials, course planning tools, counterbids, and consider the interests of
Premium Educators on our web site. and special student pricing. other stakeholders. #3712

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