The State of Wisconsin Investment Board (SWIB) is the state agency that invests the assets of the Wisconsin Retirement System (WRS), State Investment Fund and other state trust funds. The WRS Trust Funds make up about 90% of the assets managed by SWIB. SWIB is directed by an independent Board of Trustees and staffed with professional money managers and support personnel.
SWIB is interested in exploring the potential of dedicating a portion of their passive portfolio to activist investing. Generally speaking, an activist shareholder uses an equity stake in a corporation to put public pressure on its management. The goals of activist shareholders range from financial (increase of shareholder value through changes in corporate policy, financing structure, cost cutting, etc.) to non-financial (dis-investment from particular countries, adoption of environmentally friendly policies, etc.). The attraction of shareholder activism lies in its comparative cheapness; a fairly small stake (less than 10% of outstanding shares) may be enough to launch a successful campaign. In comparison, a full takeover bid is a much more costly and difficult undertaking. SWIB has approached the Nicholas Center to identify financial, operating and governance factors that could be used to identify companies in the bottom half of the Russell 1000 that would be good candidates for activist investing.
Nicholas Center students researched characteristic of successful activist investors and using this information decided to provide SWIB with two different methodologies that could be used to identify activist investing candidates. The first methodology presented to SWIB identified companies that operated in under performing industries relative to the overall market that could make operational improvements which could provide financial returns to SWIB's activist investing portfolio. The second methodology presented was a screening process to be used to identify companies that could utilize financial engineering solutions to increase shareholder value. The final presentation to SWIB included a detailed description of both methodologies and activist investing recommendations that were generated using both methodologies.
Dell, Inc. engages in the design, development, manufacturing, marketing, sale, and support of computer systems and services worldwide. Additionally, Dell offers financing solutions to its customers for the acquisition of Dell products via its wholly-owned subsidiary, Dell Financial Services (DFS). DFS is a financial services provider offering various financing options including lines of credit to its consumer and small business customers and fixed term leases and loans to its business customers.
DFS was formerly a joint venture between Dell and CIT Group, Inc. (CIT). On December 31, 2007, Dell purchased CIT's 30% interest in DFS. CIT continues to fund a portion of DFS receivables until January 29, 2010. Following this date, Dell will fund 100% of receivables originated at DFS.
With the exit of CIT as a JV partner and funding source, Dell asked the Nicholas Center to analyze and determine the optimal capital structure to effectively finance DFS operations. To arrive at a recommended capital structure, students worked with Dell's management team to identify and analyze the current funding sources DFS is utilizing to finance its operations and growth. Students also considered factors such as Dell's balance sheet capacity and liquidity, current investment grade rating, and differences in capital structures for a manufacturing vs. financing company. In addition to recommending an optimal capital structure, students presented the following deliverables to the Dell management team: (1) industry comparable/benchmarks on capital structures at peer captive finance companies, (2) data on how rating agencies & financial markets evaluate and value companies with wholly owned captive finance operations, and (3) recent industry trends, outlook, and changes to the captive finance model/landscape.
BP, founded in 1889 and headquartered in London, United Kingdom, provides fuel for transportation, energy for heat and light, retail services, and petrochemicals products. It operated in three segments: Exploration and Production, Refining and Marketing, and Other Businesses and Corporate. In response to the global financial crisis, declining oil and gas prices and falling margins for refined products, BP is seeking to reduce costs (third party expenditures and traditional staff costs and overhead) by 20% in 2009. BP has recently created an integrated Finance function, which will play a leadership role in determining how to deliver these cost reductions.
BP is addressing the cost reductions by distinguishing between one time cost reductions (which typically become unsustainable because they are imposed without affecting the underlying processes) and creating a culture of continuous improvement (through a series of small but consistent changes lead to more lasting change by addressing the underlying process). Currently at BP, there is more familiarity with one time cost reductions than continuous improvement techniques. Continuous improvement techniques are meant to encompass the broad suite of gradual improvement practices across the various terms used in manufacturing such as lean, six sigma, etc.
Nicholas Center students were asked to design and present material to be used in a half day training session to familiarize BP managers and staff with the tools and techniques of continuous improvement. After much research and careful thinking, the student team delivered to BP various continuous improvement methods and case preparations associated with each method that could be used in their training session. Additional information such as an overview of continuous improvement practices in manufacturing and finance, examples from other industries on how continuous improvement has been deployed successfully in finance organizations, and a description of challenges and mitigating practices for embedding a culture of continuous improvement in a finance organization was also provided to BP.
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