Consulting Case

Merger and acquisiti on

Contents
Microsoft Buys Social Network Yammer for $1.2 Billion.....................................................................1
InterContinental Hotels Group to Spin off Timeshare Business.........................................................2
Gillette to Double Sales in 2 Years Post Acquisition............................................................................7
FEMSA to Sell Beer Business to Heinekin............................................................................................9
Haulotte Group Acquires Bil-Jax Inc. to Expand into U.S.................................................................11
PE Firm Apollo Considers Taking Private Giro Bike Helmets...........................................................13
Conglomerate CB&I to Buy Auto Parts Manufacturing Company....................................................16
Roller Skate Maker Riedell Shoe Inc. to Buy Niche Competitor.......................................................19
Fast Food Chain Great Burger to Buy Dunkin’ Donuts......................................................................22
Georgia-Pacific to Buy Additional Paper Mill in Midwest...................................................................27
Roche to Buy San Francisco Based Genentech for $46.8 Billion....................................................30
Siemens Buys Bayer Diagnostics & Diagnostic Products Corp.......................................................32
Bronx Zoo to Buy The World’s Only Dinosaur from Africa................................................................34
UCI Cinemas Chain to Buy Cinema Firenze of Florence..................................................................38
Johnson & Johnson DePuy in Merger Talks with Synthes................................................................42
Unilever Acquires Premium Haircare Brand TIGI Linea....................................................................46
Advanced Medical Optics Buys IntraLase for $808 Million...............................................................49
Sinopec to Buy Argentinean Oil Company in Indonesia....................................................................52
Hormel Foods to Sell Spam Luncheon Meat Division.......................................................................55
PPG Industries to Buy Dutch Coatings Producer SigmaKalon.........................................................57
General Mills to Shift Focus Towards Health Food Products...........................................................60
Dupont Enters Rechargeable Battery Market via Acquisition...........................................................62
Power Company Entergy to Merge with Gulf States Utilities............................................................64
Blackstone Evaluates Asiana Club Frequent Flyer Program............................................................66
Los Angeles Zoo to Buy a Rare 900-pound Gorilla from Africa.......................................................67
BNSF Railway to Address Post-merger Integration Issues..............................................................69
Ford Considers Buying A Leading Car Rental Company..................................................................71
BASF Evaluates Cognis as Possible Acquisition Target...................................................................72
Enterprise Software Autonomy Changes Its Pricing Strategy..........................................................75
Private Equity Firm Carlyle Group to Exit Banking Business............................................................76
Bank One Successfully Completes Acquisition of First USA............................................................77
How to Address IT Integration Strategy After Merger?......................................................................78
Symantec Turns Down PC Maker’s Product Bundling Offer.............................................................79
Wilson Sporting Goods to Buy Sports Illustrated Magazine.............................................................82
AirTran Airways to Add More Service at Mitchell Airport...................................................................82
Watson Pharmaceuticals Considers Buying 5-Hour Energy.............................................................84
Bank of England to Buy National Bank of Belgium............................................................................85
Coffin Maker Collin’s Considers Selling Business..............................................................................87
Delphi Weighs Possible Partnership with Continental in Europe.....................................................90
Encyclopedia Britannica to Enter Online Web Business...................................................................92
Private Equity Firm KKR to Buy Failing Lumber Company...............................................................94
Post Wyeth Merger, Pfizer Concerned by Lost Jobs.........................................................................95
Goldman Sachs Capital to Invest in Royal Caribbean.......................................................................96
STEM Commercializes New CNS Stem Cell Product.......................................................................98
Large Shareholder Backs HP-Compaq Merger................................................................................100
Yahoo Responds to Google’s YouTube Acquisition........................................................................101
Holcim US to Acquire Local Firm in Midwest....................................................................................103
Nestle to Merge Its Ice Cream Subsidiaries......................................................................................104
The Rise and Fall of Quotron Systems..............................................................................................105
Dow Chemical Evaluates Prospects of Rohm & Haas....................................................................107
CEMEX Considers Acquiring Miami Cement Company..................................................................109
Conseco’s Acquisition of Green Tree Financial Not a Good Deal.................................................110
United Airlines Considers Acquiring Tokyo-New York Route.........................................................111

Microsoft Buys Social Network Yammer for $1.2 Billion

Case Type: merger & acquisition (M&A); pricing & valuation; finance & economics.
Consulting Firm: Capital One first round full time job interview.
Industry Coverage: software, information technology (IT).
Case Interview Question #00782: Yammer is a freemium enterprise social networking service that was
launched in 2008. Yammer is used for private communication within organizations and is an example of
enterprise social software. The tool was originally developed as an internal 
communication system for the genealogy website Geni. Access to a Yammer network is determined by a
user’s Internet domain so that only individuals with appropriate email addresses may join their respective
networks.
The year is 2012. Technology giant Microsoft Corporation (NASDAQ: MSFT) is looking to buy out
Yammer. At this time, Yammer is already profitable and is expected to have steady, continued growth for
the foreseeable future. The CEO of Yammer has offered to sell for $1.2 Billion. Is this a reasonable price
for Microsoft?
Possible Answer:
Question 1: What are some of the methods for valuing the acquisition target Yammer?
Suggested Solution:
 Discounted Cash Flow (DCF)
 Comparables / multiples from similar companies.
 Multiples such as price to earnings ratio, price to sales, assuming that information is available.
Question 2: Using a simple DCF valuation method, is an acquisition price of $1.2 Billion a good deal?
Additional Information: (to be provided to the candidate if aksed)

 Discount Rate (WACC, weighted average cost of capital): 11%

 Growth Rate: 3%
 Yearly Cash Flow (for foreseeable future): $50 million
Suggested Solution:
1. Basic DCF

Simplified Discounted Cash Flow = Perpetuity = Cash Flow / (Discount Rate – Growth) = $50 / (0.11-0.03)
= $625 million

Therefore, the asking price of $1.2 Billion is not a good deal.

2. Advanced

Use this version of solution if the interviewee should know how to calculate the Weighted Average Cost of
Capital (WACC). Note: The interviewer could add a couple of years of differing cash flows if he/she wants
the question to be more complex.

Additional Information: (to be provided to the candidate if aksed)

 Market Risk Premium: 8%
 Yammer’s Beta: 1
 Percentage of Debt: 20%
 Percentage of Equity: 80%
 Risk Free Rate: 5%
 Tax Rate: 30%
 Cost of Debt: 5%
Cost of Equity = Risk Free Rate + Beta * Risk Premium = 5% + 1 * 8% = 13%

WACC = Percentage of Debt * Cost of Debt * (1 – Tax Rate) + % of Equity * Cost of Equity = 20% * 5% *
(1 – 30%) + 80% * 13% = 11%

The DCF valuation is the same as the basic DCF from this point, resulting in a lower valuation than the
asking price.

Question 3: Can you think of risk factors or other considerations that could be taken into account when
making the buyout decision?
Suggested Solution:
The Discount Rate 11% is quite high, is it possible that Yammer is less risky and deserves a lower
discount rate?

Can Microsoft add any value to Yammer that will increase its future cash flow, lower costs at Microsoft, or
add other synergies that might increase the value of the acquisition? (In fact, Microsoft later announced
that the Yammer team would be incorporated into the Microsoft Office division).

InterContinental Hotels Group to Spin off Timeshare Business

Case Type: merger and acquisition (M&A); private equity & investment.
Consulting Firm: Bain & Company first round full time job interview.
Industry Coverage: tourism, hospitality, lodging.
Case Interview Question #00762: Your client is InterContinental Hotels Group PLC (LSE: IHG, NYSE:
IHG), a multinational hotels company headquartered in Denham, United Kingdom. Its brands include
Candlewood Suites, Crowne Plaza, Even, Holiday Inn, Holiday Inn Express, Hotel

Indigo,  Hualuxe, InterContinental and Staybridge Suites, etc.

InterContinental Hotels Group owns and operates 4,600 hotels (with over 670,000 rooms in total) across
over 100 countries, as well as a separate timeshare business with 75 properties worldwide. Their hotel
rooms are typically sold on a per night basis, whereas their timeshare properties are sold more like
traditional homes via a mortgage which in turn gives the buyer the right to stay at a timeshare property for
a set period of time each year.
The year is 2011. The CEO of InterContinental Hotels Group has just approached you and has asked for
guidance on whether or not they should spin off their timeshare business into a separate stand alone
entity called Timeshare Co. What would you recommend?

Additional Information: (to be provided upon request)

A timeshare is a property with a particular form of ownership or use rights. These properties are typically
resort condominium units, in which multiple parties hold rights to use the property, and each sharer is
allotted a period of time (typically one week and almost always the same time every year) in which they
may use the property. Units may be on a partial ownership, lease, or “right to use” basis, in which the
sharer holds no claim to ownership of the property.

The client InterContinental Hotels Group wants to weigh a few criteria, including the financial impact, risk,
and strategic outlook.

InterContinental Hotels Group only uses a five year time frame for all financial decisions.

Timeshare Co. would be spun off and taken public, with 20% of the IPO proceeds being paid back to
InterContinental Hotels Group. The remainder of IPO proceeds would go to Timeshare Co. and the
underwriters.

InterContinental Hotels Group’s bankers think they can sell 10 Million shares at $220 each.

Possible Answer:
1. Financial Impact

Question #1: What is the financial decision making process for whether or not to spin off Timeshare Co.?
Provide Exhibit 1 “Profit Projections” (the year is 2011) to candidate.
Exhibit 1: Timeshare Co. Historic and Projected Profits

Possible Answer:
The candidate should notice that industry home sales are a good proxy for Timeshare Co.’s revenues,
and forecast out five years of profits (2011-2015).

 2011 Forecast: -50M

 2012 Forecast: 0M
 2013 Forecast: 100M
 2014 Forecast: 150M
 2015 Forecast: 250M
Total 5 year forecast profits of Timeshare Co: -50 + 100 + 150 + 250 = 450M.

Per the opening information, if spun off, InterContinental Hotels Group can expect 20% of the IPO
proceeds. Bankers expect to IPO 10 Million shares at $220 each, or $2.2 Billion total. 20% of $2.2 Billion
is $440M to be earned by InterContinental Hotels Group if they spin off Timeshare Co.

Based on those amounts, it does not make financial sense to spin off Timeshare Co. ($440M if spun off
versus five year projected revenues of $450M if kept in-house.)
Mitigation: $450M revenues are expectations and subject to a lot of risk and variability versus little to no
risk if InterContinental Hotels Group just takes the IPO payment.

2. Risk

Questions #2: What is the risk decision making process for whether or not to spin off Timeshare Co.?
Provide Exhibit 2 “Mortgage Default Rates” and Exhibit 3 “Mortgage Portfolio’s Contribution to Profits” to
candidate.
Exhibit 2: Mortgage Default Expectations

Year Default Rate

2007 1.5%

2008 8.5%

2009 11.0%

2010 9.5%

2011
* 8.5%

2012
* 6.0%

2013
* 4.5%

2014
* 4.7%

2015
* 4.3%

Exhibit 3: Mortgage Portfolio’s Contribution to Profits

Year Portion of Profits

2007 95.0%

2008 94.0%

2009 92.0%
2010 94.0%

2011
* 95.0%

2012
* 96.0%

2013
* 95.0%

2014
* 97.0%

2015
* 96.0%

Possible Answer:
Exhibit 2: the candidate should notice that default rates spiked in 2008/2009, and seem to remain much
higher than in the past.

Exhibit 3: the candidate should notice how important mortgages are to overall success of business.
Mortgage revenues always account for around 95% of total revenues.

Main takeaway: Timeshare Co.’s revenues are risky given the variability of mortgage default rates, and it
seems as though default rates will never return to pre-2008 levels. A “new low” seems to have been
established around 4.5%.

Thus, it seems risky to keep Timeshare Co.’s business in house. The economic uncertainty with mortgage
portfolios puts too much risk into InterContinental Hotels Group’s business. Spinning off Timeshare Co.
would get rid of a lot of risk to InterContinental Hotels Group

Mitigation: While spinning off the business would be one way to achieve less risk, there are other options
available to reduce risk from Timeshare Co, for instance:

 Connect timeshare buyers with mortgage companies and collect a finder’s fee instead of carrying
mortgages in-house
 Buy mortgage default insurance to reduce volatility
3. Conclusion

A. Recommendation

The client InterContinental Hotels Group should spin off Timeshare Co.
 IPO proceeds are only slightly less than the 5-year expected profits, but profits are extremely
volatile.
 It also makes sense from a risk standpoint. While there are other ways to reduce risk, spinning off
Timeshare Co. helps achieve a reduction in risk.
B. Next Steps

 Must examine the impact of cross selling: How many timeshares are sold to hotel customers?
How can we continue to cross sell after a spin off?
 Must consider other ways to reduce risks at Timeshare Co apart from simply spinning off the
business.
Gillette to Double Sales in 2 Years Post Acquisition
Case Type: increase sales; market entry; merger and acquisition (M&A).
Consulting Firm: Boston Consulting Group (BCG) first round full time job interview.
Industry Coverage: household goods & consumer products.
Case Interview Question #00746: You are the Vice President of market development for the Gillette
Company, an American consumer packaged goods (CPG) company headquartered in Boston,
Massachusetts. The Gillette Company was founded by King C. Gillette in 1901 as a safety razor

manufacturer. Nowadays the  Gillette Company sells four major product lines
generating $500 Million in annual revenues:
(1) shaving products
(2) skin care (with skin protective and sun-blocking properties)
(3) baby care bottles (impact resistant)
(4) tampons (very absorbent features)

The year is 2006. Your company Gillette has just been acquired by Procter & Gamble (NYSE: PG), a
global consumer goods company that makes a wide range of products including pet foods, cleaning
agents, personal care products, and shaving products. Most of Procter & Gamble’s brands are global
products available on several continents.
How would you recommend increasing the Gillette Company’s sales from $500 Million to $1 Billion in 2
years post acquisition?

Possible Answer:
Post acquisition there are potential synergies in distribution between Procter & Gamble and Gillette
related to shaving and skin care products. Gillette should look to grow geographically to new markets.
One criterion is to focus on areas that are greatly exposed to the sun.
Another focus is to look at the ability of Gillette to finance the expansion so it may want to divest another
product line if it is not performing as well as sun care such as either the tampon or baby care lines.

The following additional information is provided about the various international markets:

Region Market Size (billions) Growth Trend

U.S. $50 Billion 3%

Europe $30 Billion 6%

Asia $10 Billion 12%

Latin America $10 Billion 12%

The candidate may want to ask more about the perception of Gillette’s sun care brand in each market to
determine possible performance.

Region Brand Ranking Value Proposition

U.S. #2 or #3 Functional Care

Europe #2 Aspirational U.S. lifestyle

Asia #1 Beauty and fairness

Latin America #1 or #2 Functional Care

Interviewer: Based on this information, which two geographical markets would you want to focus on first
and second? Why? The candidate then is asked what are the ways he/she will expand in each market.

Possible Answer:
Phase 1: Enter the Asian market can be first for its high growth and market potential. The Gillette
Company can take advantage of its core functionality for sun protection and sun blocking since the Asian
market values maintaining fair skin to avoid suntans. Market entry includes establishing suppliers, retail
distribution, addressing the competitive reaction, marketing, any language or cultural issues and local
government regulations.

Phase 2: Enter the Latin American market based on the products’ skin care functionality.

Phase 3: Sell product to the distributors and acquire a supply chain.

Interviewer: If the retail price per case is $150, and the mark up margin by the distributor to the retailer is
50%, and the markup from your company Gillette (manufacturer) is 100%, what is the cost of each case?
Possible Answer:
Take $150 / (1 + 50%) = $100 price to distributor.
Take $100 / (1 + 100%) = $50 cost from manufacturer

Interviewer: What are some savings and costs associated with the use of a distributor?

Possible Answer:
Significant cost savings can be accomplished by

 Recognizing synergies from having Gillette use the same supplier and distribution networks
already in place by Procter & Gamble.
 Cost savings from further economies of scale.
However, the main costs of discontinuing with Gillette’s current supplier are:

 Contract costs of terminating the relationship short of the agreed upon expiration.
 Sunk costs of the inventory that the current supplier will no longer be motivated to support as the
relationship has ended.
 Fees to the new supplier.
Recommended Conclusion
Gillette should look to leverage the synergies from Procter & Gamble such as similar product lines in skin
care and access to the global market using Procter & Gamble’s international suppliers and networks.

The expansion into the global markets should be evaluated along the preferences of each geographical
region based on market growth potential first in Asia and then Latin America. Each region would require
different marketing strategies that match each area’s preferences from functional to lifestyle aspirations
benefit propositions.

The expansion has opportunities for significant cost savings from synergies in sharing suppliers and
distributors that would need to be above the costs of terminating Gillette’s existing relationships.

FEMSA to Sell Beer Business to Heinekin

Case Type: merger and acquisition (M&A).
Consulting Firm: McKinsey & Company first round full time job interview.
Industry Coverage: food & beverages; tobacco & alcohol.
Case Interview Question #00741: The client Fomento Económico Mexicano, S.A.B. de C.V., doing
business as FEMSA (BMV: FEMSA, NYSE: FMX), is the largest beverage company in Mexico and in
Latin America. Headquartered in Monterrey, Mexico, FEMSA is also the largest independent Coca

Cola  bottler in the world as of September 2011.

For this case, FEMSA is interested in selling its beer business to Heinekin or SAB Miller. FEMSA is based
mostly in Mexico. Should FEMSA go ahead to sell its beer business? Why or why not? Don’t focus on the
price of the transaction, but focus on the strategic view of the case.

Additional Information: (Provide the following information if requested by the interviewee.)

FEMSA is consumer goods centric with three major business units:

The first division is Beer with $3 B in annual revenue. Its beer division has 7 – 8 brands. 75% of the total
revenue isproduced in Mexico and the other 25% is in US. They have famous brands such as Dos Equis,
Tecate, and Sol. They’ve seen 3% – 5% growth, which is in line with their mature market. Their biggest
competitor is Modelo who has been more profitable. Modelo (manufacturer of Corona beer) has a 55%
market share and FEMSA has 45%. 50% of Modelo’s revenues comes from Corona. FEMSA has 20%
operating margins. Although this market is a duopoly, the two players FEMSA and Modelo have tried to
avoid price wars, so they are cooperating to a degree, but not a ton.
The second division is CocaCola FEMSA. This is the bottling facility for Coca Cola. It’s the largest in Latin
America and the second largest in the world with $7 B in annual revenue. This division is the fastest
growing business within FEMSA. CocaCola FEMSA has made lots of acquisitions and has had strong
organic growth. Needless to say, this division is highly profitable.

The third business is FEMSA Retail ($4 B in revenue), which consists of a chain of convenience stores
similar to 7-11. FEMSA Retail is the most dominate player in the market, and it has very fast growth,
~30% a year. As it typical of the retail world, FEMSA Retail’s margins are slim. They’ve managed to
obtain a 6% margin, which is above industry average.

In the last 10 – 15 years, there have been lots of mergers and acquisitions in the beer industry. The three
major players in the beer industry are SAB Miller, Imbev, and Heinekin. Local brands tend to dominate
only in local markets. There is strong emotional aspect to local brands, but most brands are moving
toward a global reach. Typically this is because there’s sourcing, manufacturing, and distribution
synergies that help. At this point you are free to choose the side of FEMSA or Heinekin. Let me know
what you choose and what you would advise the client.

Possible Answer:
I chose FEMSA, based only on the fact that the interviewer had tons of information regarding FEMSA.
I asked whether FEMSA is public or private. It turns out FEMSA is publicly traded. That changes the
equation and how the CEO can approach this case.

Five buckets that will have an impact on share price:

 competition
 strategic
 operational
 investment options
 diversification premium
Within Competition, I talked about Modelo being a faster growing company, being squeezed out of
industry, and new entrants coming in.

Within Strategy, I talked about duopoloy currently in place and possible expansion plans.

Within Operational, there is certainly more value in a large brand. Any synergies that could be sold. Any
profit sharing or results sharing opportunities.

Investment options – When the money does come in, what to do with that money. Dividends, another
acquisition, grow current businesses, improve current operations.

Diversification premium: when you’re in 3 different business, you’re dinged in share price. The value of
the firm is worth more separately. Transaction itself: the CEO needs to know what the right selling price
is. Don’t get into numbers, but talk about it.

Transaction price. How the transaction would change the industry’s beta and company’s beta.

Once you get out of the beer business, FEMSA is no longer in the same industry as a company. FEMSA
was originally a consumer goods company. Once the beer business is sold, it’s more a distribution
company. The profile of the company changes. There will be a change in shareholder. This will also
change the company’s beta. As a CEO, you will need to understand these issues. Institutions that would
previously fit in their beverage portfolio would no longer fit. FEMSA is facing the risk of getting squeezed
out of industry because we’re growing slower than our competitor.

Given the trends, we will be squeezed out. If a third competitor comes into the equation, competition
becomes harder to maintain and the company could be squeezed out further.

Based on all these considerations the final recommendation to FEMSA is to sell the beer division.
Haulotte Group Acquires Bil-Jax Inc. to Expand into U.S.
Case Type: merger and acquisition (M&A); market entry.
Consulting Firm: Capgemini Consulting first round full time job interview.
Industry Coverage: industrial equipment; manufacturing.
Case Interview Question #00728: The client Haulotte Group (Euronext: PIG) is an industrial
manufacturer of cranes and aerial work platform (AWP). An aerial work platform, also known as an aerial
device, elevating work platform (EWP), or mobile elevating work platform (MEWP) is a mechanical device

used to provide temporary access for people or equipment to inaccessible areas,

usually at height.
The client Haulotte Group is a french company and has recently acquired a U.S. business Bil-Jax Inc. to
expand their product offering and also enter the U.S. market. The two major product lines are mobile
cranes and tower cranes. The combined company holds approximately 60% of the market. Currently the
tower business, used for skyscrapers, is located in Europe. The mobile business, used for building
highways, is located in the U.S. Prior to the acquisition, the client company Haulotte Group did have a
small mobile manufacturer located in Germany that they still retain.
The client has brought you and your consulting team in to determine how to reduce redundancy and
maintain a single face to the customer. The client also wants to explore the possibility of expanding
mobile cranes business into Europe and tower cranes into the U.S. Should they build new facilities or just
ship products?

Additional Information: (Provide the following information if requested by interviewee)

1. Product Flow

 Manufacturer – Dealer – Construction firm (60% revenues)

 Manufacturer – Construction firms (40% revenues)
The dealer often leases equipment to end customer. Along with that, they are responsible for the repairs
to equipment. Their sales force must know the product. The margin they earn is important. The
information about merger / acquisition was communicated to dealer so they had an expectation of being
able to benefit from redundancy elimination. The dealers will likely expect a lower cost from the
manufacturer because of redundancy elimination.

2. Market Share

Europe US
Tower 80% 20%

Mobile 40% 70%

Total 60% (globally)

Possible Answer:
1. Customer Confidence

After the acquisition, managing the dealer relationship is key. The dealers will now have a larger cost of
doing business by needing to learn the sales pitch for the new catalog of products. Not to mention the
large cost of being prepared to service them. They will need higher margin to offset costs.

2. Expansion Plans

The Mobile Cranes business has 3 options

A. Expand German facility

 Determine capacity of German facility – no action until it reaches 100% capacity

B. Navigate sites in Europe for possible new facilities

 Pro: No tariffs
 Cons: Finding location that makes sense, Capital Investment
C. Ship to Europe

 Pro: Spillover excess inventory

 Con: Tariffs, scale to overcome competition (need to worry about competitor retaliation), lead time
The Tower Cranes business has 2 options

A. Build new facilities in the U.S.

 Pro: No tariffs
 Con: Measure customer demand (Does customer demand warrant a new facility?)
B. Ship from Europe

 Pro: Manage competition if views as insignificant

 Con: Tariffs, scale to overcome competition, lead time
This was an actual client problem the interviewer worked on. They maxed out production in Germany. In
the U.S., they converted a facility to create a hybrid product between mobile and tower cranes that could
do small- to mid-sized projects. They didn’t have to invest as much capital as would have been required
by a new facility. They gained signification market share.
PE Firm Apollo Considers Taking Private Giro Bike Helmets
Case Type: private equity (PE), investment; merger and acquisition (M&A).
Consulting Firm: Bain & Company second round full time job interview.
Industry Coverage: sports, leisure & recreation.
Case Interview Question #00687: Our client is Apollo Global Management (NYSE: APO), an American
private equity firm headquartered in New York City. Apollo specializes in leveraged buyout transactions
and purchases of distressed securities involving corporate restructuring, special situations, and

industry  consolidations. The firm has invested over $16 billion in companies. As
of March 2013, Apollo managed over USD $114 billion of investor commitments across its private equity,
credit and real estate funds and other investment vehicles making it one of the largest alternative
investment management firms globally.
Recently, private equity firm Apollo is considering taking private a leading manufacturer of bicycle helmets
Easton-Bell Sports. Easton-Bell Sports owns the Giro bicycle helmet brands. Should they? Why or why
not?
Possible Answer:
Note to Interviewer:
Share the additional information in each bullet only if the candidate asks for it in a clear and deliberate
way. For bullets with “Explore with candidate” sub-points, make the candidate answer the associated
question completely.

1. Market Share

The bicycle helmets company Easton-Bell Sports is the clear market leader with 60% share in the U.S.

2. Competition

Existing competitors have small share. However, there are some new entrants that are still small but
growing quickly, including sportswear companies Nike and Reebok.

3. Channels

Historically, Giro bicycle helmets have sold primarily through the Mom-and-Pop specialty bike retailer
channel. Channel mix has recently moved to 50% discounters (e.g. Wal-Mart) and it looks like discounters
will dominate in future.
Question #1: Explore with candidate: How are these changes in distribution channel going to effect the
Easton-Bell Sports company’s future prospects?
Possible Answer:
Margins will come under pressure from discounters. But more importantly, competitors such as Nike will
have a tremendous advantage in the discounter channel due to greater scale and leverage in distributor
relationship. Also, a recognizable consumer brand (especially with the sports image of Nike) creates
competitive advantage in discounter channel where an expert bike-shop salesperson is not there to push
the HardHead product.

4. Cost Position

Easton-Bell Sports company and all competitors are manufacturing in Asia, so costs are very low. No
competitor is likely to be able to realize any greater cost advantage. (Don’t let the candidate get distracted
in finding cost savings – this is not that kind of case.)

5. Regulatory Issues

In the last 5 years, most states passed helmet laws requiring cyclist to wear bicycle helmets.

Question #2: Explore with candidate: What impact does this fact have? Draw a graph of revenue over
the past five years and projecting into the next five years.
Possible Answer:
This drove a significant increase in sales as helmets were purchased for the first time. This event will not
be repeated, so sales will level off.

6. Customer Segments

The customer segments that Easton-Bell Sports Company sells to primarily are the Adult Cycling
Enthusiast segment, the Casual Biker segment, and the Under 18 segment.

Question #3: Explore with candidate: How would you expect the purchase behavior to differ between
these segments? What does each segment want in a helmet?
Possible Answer:
Adults purchase a new helmet infrequently (only after a crash or significant wear) while children must
have new helmets every few years as their head size grows. Adult Cycling Enthusiasts are more
concerned about having the coolest gear and tend toward more fashion-forward designs. The Casual
Biker is more conservative in their fashion but still wants something that looks cool. Children’s helmets
are purchased by their parents who care about safety but influenced by the kids who care about cool.

Question #4: For strong candidate, further explore: What would you expect the market size of each of
these segments to be? What are the implications for Easton-Bell Sports Company’s future earnings?
Possible Answer:
Let the candidate come up with all of the assumptions and then work the math. Actual numbers don’t
matter much as long as the assumptions are reasonable and the math is done correctly. Note that 100
million households is the standard assumption in consulting.

 Assume 100 million households, 50% have children with 2 children per household, 75% of
children ride bicycles, therefore: 75M Under 18 customers.
 Assume 2% of adults are Cycling Enthusiasts, or 2M.
 Assume 20% of adults are Casual Bikers, or 20M.
Since the helmet laws created a large number of one-time purchases, we need to rely on the Under 18
market and new entrants to the adult segments for ongoing sales.

7. Product

From a safety standpoint, there is no new innovation in bike helmet design. From a fashion standpoint,
there is much innovation, especially by the new entrants like Nike and Reebok.

If the candidate is having trouble exploring all of the above topics, provide some direction to help them
along, e.g. ask “Do you think that there might be any government regulation that would impact past or
future sales?”

8. Conclusion

A star candidate will see that his/her time is nearly up and will present a recommendation for the PE firm
Apollo without prompting. If the interview is within 3 minutes of the end, ask: “The managing partner from
the PE firm Apollo just walked into the room and wants to know if he should do the deal. What would you
tell him?”

Possible Answer:
The short answer is “No”.

Easton-Bell Sports Company has been experiencing exceptional growth due to the one-time market
expansion caused by new helmet laws and its historically strong market share. This unsustainable growth
would result in an overvalued acquisition price.

New market entrants by Nike, Reebok and others will quickly steal share as consumers gravitate toward
the general sports-affiliation of these well-known brands.

Bike helmets have been largely utilitarian, but the sports brands are likely to quickly move helmets into
the fashion arena, putting Easton-Bell Sports Company at a significant disadvantage.

Furthermore, with the channel shifting strongly away from the specialty bike retailers and toward the mass
discounters, the national sports fashion brands like Nike and Reebok will have more leverage with the
retailers, possibly commanding better margins, placement, assortment, and advertising support.
The only scenario in which the PE firm Apollo might consider the acquisition is if they have interest in
another sports fashion brand that might be combined with Easton-Bell Sports Company to allow it to
compete against the new fashion helmet brands such as Nike and Reebok.

Conglomerate CB&I to Buy Auto Parts Manufacturing Company

Case Type: merger and acquisition (M&A).
Consulting Firm: Booz Allen Hamilton (BAH) first round full time job interview.
Industry Coverage: engineering & construction; automotive, motor vehicles.
Case Interview Question #00679: The client Chicago Bridge & Iron Company (commonly known as
CB&I), is a large multinational conglomerate engineering, procurement and construction (EPC) company.
As a large holding company, CB&I specializes in projects for oil and gas companies. Headquartered in
The Woodlands, Texas, USA, within the Houston–The Woodlands-Sugar Land metropolitan area, they

are a  longstanding client of ours (Booz Allen Hamilton).

The client’s revenues are about USD $5.5 Billion a year (2012). They hold all sorts of companies, mostly
around low tech manufacturing, including roughly three categories: “Oil and Gas”, “Automotive” and
“Other”. As a holding company, Chicago Bridge & Iron doesn’t really have a unified portfolio, but basically
places bets on companies it acquires. It is now looking at an auto parts manufacturer, and trying to get an
idea of whether it should acquire the auto parts manufacturing company.
So, what kind of things would you want to investigate in order to find out whether the acquisition is a good
idea?

Additional Information: (to be provided after relevant questions)

 The client CB&I ‘s financial health is excellent – sitting on a lot of cash. Their portfolio is well
diversified. They are not looking for “synergies” necessarily.
 The target company is a medium sized auto parts manufacturer. They make mostly after-market
products – winches for cars, trucks, ATVs (all-terrain vehicle). Annual revenues are $900 Million for
this product line. They have 90% of the market in the US, and the market is expected to have flat
growth.
 A second division of the auto parts company is drive train mechanism for switching car from 2-
wheel drive to 4-wheel drive. It’s a small niche market, mostly for luxury cars.
Suggested Approach:
The interviewer’s major concern in this case would be that the interviewee hasn’t developed a clear set of
criteria for assessing the potential acquisition and used these to drive through the case in a structured
fashion. There are a number of potential approaches but I would probably break it down as follows:
Before anything else I would ask for some more information on the potential acquisition target’s business.
What products do they sell? What are their revenues and margins? Etc. Then I would analyze whether
this makes the acquisition desirable by looking at the following:

First I would want to look at whether this is an attractive industry to be getting into generally – The
automotive parts industry seems to be generally consistent with the other products in their portfolio so I
would assume that they probably have the skills to manage this sort of business, is that correct? I would
also want to look at the growth prospects for this industry. Is the automotive parts industry expected to
grow faster or slower than other low tech industry companies they may also choose to invest in?

Second I would want to examine whether this is the right company within the automotive parts industry to
buy – in particular I would want to know to what extent our client could derive value from the acquisition.
Will there be any synergies with the other companies that our client owns? Will our client be able to
improve profitability by driving costs out of this business? Are there opportunities to increase sales or
grow the business faster than existing management is predicting?

Finally I would want to consider these potential improvements from a financial perspective. Does the
client have a certain NPV or ROE target that it is looking to achieve before it invests?

Possible Solution:
Question #1: What were some options for the Winch products since the market in the US seemed tapped
out?

We talked about markets not really existing in other geographies because it was mainly ATVs (all-terrain
vehicles) and they weren’t as common in other countries. We talked about leveraging the technology and
although nothing else could be made with it, they did discover a use as a “tool” for home and shop use (to
lift bricks etc).

Question #2: Who would the customers be here?

We talked about small contractors and home use consumers (do it yourself) I asked where they shopped
and it turned out that small contractors shopped mainly at wholesalers and big box shops like Home
Depot. The trend was moving towards big box. These shops only renew their contracts once a year with
manufacturers.

Question #3: How would you figure out margins for Home Depot?

We talked about how margins were based on margin/square foot and that you could ask for a small
space, but keep it extremely well stocked at all times and keep our packaging small.

Question #4: How would you bring in customers in this entirely new market?
Advertising through do it yourself channels on TV, magazines, in-store demos. (this apparently didn’t work
as well b/c they had to send people to 350 stores to do the demos and for a small company it was too
much).

Question #5: He then wanted to talk about sales in the Drive Train component area:

I asked about consumers, and we talked about consumers being both end consumers and auto
manufacturers. I asked how often cars were redesigned and he said every 4-5 years, but the trend was
going down towards every 3 years.

Question #6: What does this tell us?

The opportunity to get in a redesign is better.

Question #7: What does this tell us about the future as this time continues to go down? Is this an
advantage?

I said no, because now you will likely have more competitive pressure from those who saw this as a
barrier.

Question #8: Lastly, he wanted to know how I would evaluate the overall deal tactically.

I talked about doing some sort of return on investment calculation to make sure the return was adequate,
and that the results we needed in a particular time frame existed.

Roller Skate Maker Riedell Shoe Inc. to Buy Niche Competitor

Case Type: merger and acquisition (M&A).
Consulting Firm: Oliver Wyman first round full time job interview.
Industry Coverage: sports, leisure & recreation; apparel, clothing & textiles.
Case Interview Question #00673: Our client Riedell Shoe Inc. is a leading American roller skate
manufacturer. The company was founded in Red Wing, Minnesota in 1947 by a former Red Wing Shoes
Company employee Paul Riedell and his wife Sophie. For more than 60 years, this family owned

company  has produced the finest quality skates available in the market.
Recently, we’ve been hired by the Riedell family to determine possible avenues of growth for their roller
skate company. Currently Riedell Shoe Inc. is the market leader with a 32% share in the roller skate
market, but their recent performance has been flat, both in terms of revenue and profit. They are
specifically looking at whether they should acquire a company to drive growth, and are looking for our
recommendation. What would you recommend the Riedell family to do?
Additional Information: (to be given to candidate upon request)
The roller skate market is flat overall, with declining sales in traditional skates. There are pockets of
growth in some niche markets, for example innovative, high-tech products.

Current roller skates market share (U.S. market only):

 Client Riedell Shoe Inc.: 32%
 Company A: 19%
 Company B: 9%
 Other companies: 5% or less
Our client, Company A, and Company B all offer a wide range of roller skates, primarily traditional
models, but with an increasing emphasis on innovation. However, their R&D is not considered cutting-
edge or even particularly strong.

Many of the smaller competitors are much more innovative, and offer very targeted products that have
high share in niche markets that our client does not serve. These new targeted products are also more
profitable than traditional roller skates.

Our client has limited experience with acquisitions. Three years ago, the client acquired one of its smaller
competitors, and that company’s sales are now down by 40%. However, the management the Riedell
family is confident in their integration skills.

Suggested Approach:
3C’s framework: Company, Competitors, Customers

Possible Solution:
Let’s look at the three areas of 3C’s framework: customers, competitors, and the company itself.

1. Customers

It is important to understand why our client’s sales are declining. In this case, customers simply aren’t as
interested in traditional roller skates anymore, resulting in declining growth. Customers want innovative,
high-tech products and are willing to pay more for them.

2. Competitors

There are two types of competitors, traditional roller skate manufacturers very similar to our client, and
niche competitors who tend to be much more innovative. The traditional companies face similar problems
as our client, but on the other hand significant cost synergies could be captured. Niche companies
potentially offer significant growth opportunities and better profitability, if they have sustainable innovation
capabilities.
3. Company

We know that profitability is down in addition to revenue. One way to improve profitability is to reduce
costs – and acquisition synergies could be a good way to accomplish this. In considering whether to make
an acquisition, it is also important to understand our client company management’s ability to handle the
integration phase effectively and without becoming distracted from their other responsibilities.

Now let’s consider the possible steps the client could take. Basically there are three options: acquire a
traditional roller skates company (A or B), acquire a niche company, or acquire no company at all.

1. First, the client could acquire Company A or B, which would increase sales and supply significant
savings via cost synergies.

There are a number of possible sources of cost synergies, some of the most likely would be

 G&A (General & Administrative expense): accounting, IT, HR, etc

 property: consolidate HQs
 distribution: consolidate distribution centers
 marketing/advertising
 COGS (cost of goods sold): purchasing
However, this assumes that the client could successfully integrate Company A or B. We know from prior
experience that the client had problems managing one small acquisition, so this may be highly
questionable.

2. Another possibility would be to acquire one of the client’s niche competitors that operate in higher-
growth areas. The client could use its manufacturing and distribution scale to produce more efficiently and
to increase sales. These smaller acquisitions would be less risky than one large acquisition — the
acquisition cost would be less and the integration would be less complex. However, the client would need
to pick the “winners” among the target possibilities, companies with sustainable growth prospects, and
this may prove challenging.

3. If no target is available for a reasonable acquisition price, or if the client’s integration skills are deemed
insufficient, then our client should not make an acquisition. In that case, our client could focus on organic
growth, e.g., improving innovation and R&D, and cost cutting to improve its top and bottom line results.

After carefully weighing all possibilities, my Recommendation is to acquire one of the smaller niche
competitors to capture growth potential via better innovation combined with the client’s production
capabilities.
Notes to Interviewer:
If the candidate does not mention synergies as a rationale for an acquisition, ask them: What kinds of
synergies could our client expect to result from an acquisition?
Optional math question: Let’s say that we expect $4 million in run-rate synergy savings. What % of the
client’s annual revenue does this savings represent? Note that the total annual sales for the roller skate
market are $50 million.

Possible Answer:
$4 million / ($50 million * 32%) = $4 million / $16 million = 25%

Fast Food Chain Great Burger to Buy Dunkin’ Donuts

Case Type: merger and acquisition (M&A).
Consulting Firm: McKinsey & Company final round full time job interview.
Industry Coverage: restaurant & food services.
Case Interview Question #00659: Our client is Great Burger, a fast food chain that competes head-to-
head with McDonald’s, Wendy’s, Burger King, KFC, etc. Currently, Great Burger is the fourth largest fast
food chain worldwide, measured by the number of stores in operation. As most of its competitors do,

Great Burger offers food and “combos” for the three largest meal occasions:
breakfast, lunch, and dinner.
Even though Great Burger owns some of its stores, it operates under the franchising business model with
85% of its stores owned by franchisees. Individual franchisees own and manage stores under the “Great
Burger” brand, pay franchise fee to Great Burger, but major business decisions, e.g., menu, look of store,
are controlled by Great Burger.

As part of its growth strategy, Great Burger has analyzed some potential acquisition targets including
Canton, Massachusetts based Dunkin’ Donuts (DD), a growing doughnut producer with both a U.S. and
international store presence.
Dunkin’ Donuts operates under the franchising business model too, though a little bit differently than
Great Burger. While Great Burger franchises restaurants, Dunkin’ Donuts franchises areas or regions in
which the franchisee is required to open a certain number of stores.

Great Burger’s CEO has hired McKinsey to advise him on whether they should acquire Dunkin’ Donuts or
not. How would you go about this case? Should Great Burger acquire Dunkin’ Donuts as part of its growth
strategy?

Question #1: What areas would you want to explore to determine whether Great Burger should acquire
Dunkin’ Donuts (DD)?
Possible Answer:
Some possible areas are given below. Great job if you identified several of these and perhaps others.

a. Stand alone value of DD

 Growth in market for doughnuts

 DD’s past and projected future sales growth (break down into growth in number of stores, and
growth in same store sales)
 Competition – are there any other major national chains that are doing better than DD in terms of
growth/profit. What does this imply for future growth?
 Profitability/profit margin
 Capital required to fund growth (capital investment to open new stores, working capital)
b. Synergies/strategic fit

 Brand quality similar? Would they enhance or detract from each other if marketed side by side?
 How much overlap of customer base? (very little overlap might cause concern that brands are not
compatible, too much might imply little room to expand sales by cross-marketing)
 Synergies (Hint: do not dive deep on this, as it will be covered later)
c. Management team/cultural fit

 Capabilities/skills of top, middle management

 Cultural fit, if very different, what percent of key management would likely be able to adjust
d. Ability to execute merger/combine companies

 Great Burger experience with mergers in past/experience in integrating companies

 Franchise structure differences. Detail “dive” into franchising structures. Would these different
structures affect the deal?
The McKinsey team started thinking about potential synergies that could be achieved by acquiring DD.
Here are some key facts on Great Burger and DD.

Exhibit 1
Stores Great Burger Dunkin’ Donuts

Total 5,000 1,020

North America 3,500 1,000

Europe 1,000 20

Asia 400 0

Other 100 0

Annual growth in 10% 15%

stores

Financials Great Burger Dunkin’ Donuts

Total store sales $5,500m $700m

Parent company revenue $1,900m $200m

Key expenses (% sales)

* Cost of sales 51% 40%

* Restaurant operating costs 24% 26%

* Restaurant property & equipment costs 4.6% 8.5%

* Corporate general & administrative costs 8% 15%

Profit as % of sales 6.3% 4.9%

Sales/stores $1.1m $0.7m

Industry average $0.9m $0.8m

Question #2: What potential synergies can you think of between Great Burger and Dunkin’ Donuts (DD)?
Possible Answer:
We are looking for a few responses similar to the ones below:

a. Lower costs

 Biggest opportunity likely in corporate selling, general, and administrative expenses (SG&A) by
integrating corporate management
 May be some opportunity to lower food costs with larger purchasing volume on similar food items
(e.g., beverages, deep frying oil), however overlaps may be low as ingredients are very different
 Great Burger appears to have an advantage in property and equipment costs which might be
leveragable to DD (e.g., superior skills in lease negotiation)
b. Increase revenues

 Sell doughnuts in Great Burger stores, or some selected Great Burger products in DD stores
 Great Burger has much greater international presence thus likely has knowledge/skills to enable
DD to expand outside of North America
 Great Burger may have superior skills in identifying attractive locations for stores as its sales per
store are higher than industry average, whereas DD’s is lower than industry average; might be able
to leverage this when opening new DD stores to increase DD average sales per store
 Expand DD faster than it could do on own–Great Burger, as a larger company with lower debt,
may have better access to capital
Question #3: The McKinsey team thinks that with synergies, it should be possible to double DD’s U.S.
market share in the next 5 years, and that Great Burger’s access to capital will allow it to expand the
number of DD stores by 2.5 times. What sales per store will DD require in 5 years in order for Great
Burger to achieve these goals? Use any data from Exhibit 1 you need, additionally, your interviewer would
provide the following assumptions for you:
 Doughnut consumption/capita in the U.S. is $10/year today, and is projected to grow to $20/year
in 5 years.
 For ease of calculation, assume U.S. population is 300m.
Possible Answer:
You should always feel free to ask your interviewer additional questions to help you with your response.

Possible responses might include the following:

 Market share today: $700M DD sales (from Exhibit 1) ÷ $3B U.S. market ($10 * 300M people) =
23% (round to 25% for simplicity sake)
 U.S. market in 5 years = $20 * 300M people = $6B
 DD sales if double market share: 50% * $6B = $3B
 Per store sales: $3B / (1000 stores * 2.5) = $1.2M
Does this seem reasonable? — Yes, given it implies less than double same store sales growth and per
capita consumption is predicted to double.

Question #4: One of the synergies that the McKinsey team thinks might have a big potential is the idea of
increasing the businesses’ overall profitability by selling doughnuts in Great Burger stores. How would
you assess the profitability impact of this synergy?
Possible Answer:
Be sure you can clearly explain how the assessment you are proposing would help to answer the
question posed. Some possible answers include:

 Calculate incremental revenues by selling doughnuts in Great Burger stores (calculate how many
doughnuts per store, times price per doughnut, times number of Great Burger stores)
 Calculate incremental costs by selling doughnuts in Great Burger stores (costs of production,
incremental number of employees, employee training, software changes, incremental marketing and
advertising, incremental cost of distribution if we cannot produce doughnuts in house, etc.)
 Calculate incremental investments. Do we need more space in each store if we think we are
going to attract new customers? Do we need to invest in store layout to have in-house doughnut
production?
 If your answer were to take into account cannibalization, what would be the rate of cannibalization
with Great Burger offerings? Doughnut cannibalization will be higher with breakfast products than
lunch and dinner products, etc.
 One way to calculate this cannibalization is to look at historic cannibalization rates with new
product/offering launchings within Great Burger stores
 Might also cannibalize other DD stores if they are nearby Great Burger store–could estimate this
impact by seeing historical change in DD’s sales when competitor doughnut store opens nearby
Question #5: What would be the incremental profit per store if we think we are going to sell 50,000
doughnuts per store at a price of $2 per doughnut at a 60 percent margin with a cannibalization rate of 10
percent of Great Burger’s sales?
Exhibit 2
Sales and profitability per store

Units of Great Burger sold per store 300,000

Sales price per unit $3 per unit

Margin 50%

Units of DD sold in Great Burger stores 50,000

Sales price per unit $2 per unit

Margin 60%

Cannibalization rate of DD products to Great Burger products 10%

Possible Answer:
While you may find that doing straightforward math problems in the context of an interview is a bit
tougher, you can see that it is just a matter of breaking the problem down. We are looking at both your
ability to set the analysis up properly and then do the math in real time.

Based on correct calculations, your response should be as follows:

Incremental profit = contribution from DD sales less contribution lost due to cannibalized Great Burger
sales = 50K units * $2/unit * 60% margin – 300K units * 10% cannibalization * $3/unit * 50% margin =
$60K – 45K = 15K incremental profit/store

Question #6: You run into the CEO of Great Burger in the hall. He asks you to summarize McKinsey’s
perspective so far on whether Great Burger should acquire DD. Pretend the interviewer is the CEO, what
would you say?
Possible Answer:
You may have a slightly different list. Whatever your approach, we love to see candidates come at a
problem in more than one way, but still address the issue as directly and practically as possible.

Answers may vary, but here is an example of a good response:

 Early findings lead us to believe acquiring DD would create significant value for Great Burger, and
that Great Burger should acquire DD
  We believe that our client can add $15 thousand in profit per Great Burger store by
selling DD in Great Burger stores. This could mean $50 million in incremental profit for North
American stores (where immediate synergies are most likely given DD has little brand presence
in rest of world)
 We also believe there are other potential revenue and cost synergies that the team still
needs to quantify
 Once our team has quantified the incremental revenues, cost savings, and investments, we will
make a recommendation on the price you should be willing to pay.
 We will also give you recommendations on what it will take to integrate the two companies in
order to capture the potential revenue and cost savings, and also to manage the different franchise
structures and potentially different cultures of Great Burger and DD.
Georgia-Pacific to Buy Additional Paper Mill in Midwest
Case Type: business turnaround; merger and acquisition (M&A).
Consulting Firm: Cognizant Business Consulting (CBC) first round full time job interview.
Industry Coverage: forestry, paper products.
Case Interview Question #00647: The client is the CEO of Georgia-Pacific LLC, an American pulp and
paper company based in Atlanta, Georgia. The company is one of the world’s leading manufacturers and
distributors of tissue, pulp, paper, toilet and paper towel dispensers, packaging paper, building products

and related chemicals.  As of Fall 2010, the Georgia-Pacific company employed

more than 40,000 people at more than 300 locations in North America, South America and Europe. It is
an independently operated and managed company of multinational conglomerate Koch Industries.
In the US, the paper industry generally has over-capacity. Recently the industry has also seen a trend of
consolidation. This year, the client Georgia-Pacific paper company has seen 2 consecutive losing
quarters. Your consulting team has been hired by the CEO of Georgia-Pacific to turn around his
company. What should the company do?
Question #1: What factors would you consider in turning around the paper company?
Possible Solution:
A good structure will include the following elements (3C’s framework).

1. Company

 What are the products the client is currently selling?

 How do their products fit into the overall market?
 What is the value chain for our client and where is the problem that causes the loss in
profitability?
2. Market for the products

 What is the size of the overall market?

 Are there any overall growth/shrinkage of the market?
3. Competition

 Fragmented market or big competitors dominate?

 What are the competitions doing currently?
 Substitutes for the products in the market
4. Customers

 Who are the client’s customers?

 What are the need of these customers?
 How does our client meet customers’ needs?
Question #2: Ask the candidate to look at the company’s profitability and assess how much we need to
increase revenues or decrease costs to become profitable.
Additional Information provided upon request:
1. Products:

 Book paper, considered their core product – 90% of the revenues

 Carbonless paper, used in credit card machines – 10% of the revenues
 The cost to change manufacturing lines from one product to another is minimal
2. Industry:

 Book paper market is stagnant, the client is #2 in market, and there are 3 main players
 Carbonless paper market is shrinking, but profits are slightly rising, the client is #5 in market, and
there are many players
3. Customers:

 Book paper customers are publishers

 Carbonless paper customers are large distributors
4. Company:

 The client currently has 2 plants in Wisconsin and Pennsylvania

Possible Answer:
Looking at the revenues coming from the two products and the situation in their respective markets, there
appears to be little opportunity for improvement in revenues. Although the profit in carbonless paper is
higher, the market is shrinking.

In order to look at the cost side I would like to better understand the value chain for the products.

Procurement -> Manufacturing -> Distribution -> Sales and Marketing

Additional Information provided upon request:
 Procurement: Inputs are raw materials (pulp) and chemicals; the prices of both are generally
rising
 Manufacturing: The client’s 2 plants are generally old and unsophisticated
 Distribution: Currently, the client uses 45% rail and 55% trucking; the price of rail is on average
50% lower; trucks are typically running ~40% empty
 Sales and Marketing: the client differentiates on their service level, e.g. next day delivery, 2nd day
to west coast, etc; competitors differentiate on brightness and price of paper
Note: The candidate should notice that the client has little room to move on the purchase of commodities;
upon further questioning, the candidate should be told that the service level is important to their
customers; a manufacturing discussion is important, but should be saved for the next part. Therefore, the
important point here is the wasted money in distribution.
Based on these additional information it seems there is a lot of waste in their cost structure and there are
lots of ways to decrease costs:

 Purchasing the raw materials at lower costs (new contracts / consolidate suppliers for more
buying power, etc)
 New technology could help them reduce the cost of manufacturing paper
 Distribution seems to be the quickest win that can provide great savings by moving from trucking
to rail and/or by making sure that trucks run at full capacity.
Question #3: The CEO of Georgia-Pacific paper company notifies you that he is considering purchasing
up to 3 additional paper mills
 East Coast Mill: has 2 manufacturing lines that are older technology, the mill comes with its own
distribution center
 Mid-West Mill: has 4 manufacturing lines that are state of the art, and produces its own pulp
 West Coast Mill: similar to East Coast Mill
How does this affect the analysis? The candidate should provide a final recommendation to the client.

Additional Information provided upon request:

 Prices for each paper mill:
 East Coast Mill $70 million
 Mid-West Mill $80 million
 West Coast Mill $60 million
 To update the firm’s Wisconsin mill to the technology level of the Mid-West mill will cost $120
million
 The Mid-West mill has easy access to rail and truck transportation
 The client’s current Wisconsin plant has rail access only with Wisconsin Central, essentially a
monopoly that charges high freight rates
 75% of the firm’s customers lie east of the Mississippi
Possible Answers:
Good answers:
At this point, it should be clear to the candidate that the firm’s major problems lie on the cost side and that
the two largest buckets that need to be addressed are raw materials and distribution cost; plant efficiency
is also a tertiary issue.

A good candidate will suggest purchasing at a minimum the Mid-West plant for the distribution advantage
and possibly the East Coast plant because of the distribution center. The West Coast mill is a red herring.

Better answers:

 Better answers would recommend purchasing the Mid-West plant and closing down the current
Wisconsin plant since over-capacity is an issue
 This enables more efficient production and better access to cheaper distribution
 The firm should set up distribution centers to allow slower & cheaper distribution by rail but at the
same time enable the maintenance of the high service level that customers require
 Any distribution centers should be geographically located near high concentrations of
customers; since the plants will be in the Mid-West & Pennsylvania, this would likely be in the
South
 The East Coast plant should not be purchased since the real attractive piece is the distribution
center, not the plant itself, and it is much cheaper to set up distribution centers than spend $70 million
on purchasing a new plant.
Roche to Buy San Francisco Based Genentech for $46.8 Billion
Case Type: merger and acquisition (M&A).
Consulting Firm: Huron Consulting Group first round job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences.
Case Interview Question #00632: Our client F. Hoffmann-La Roche Ltd. (SIX: ROG) is a global health
care group company that operates worldwide under two divisions: Pharmaceuticals and Diagnostics. With
its headquarter located in Basel, Switzerland, the company has many pharmaceutical and diagnostic

sites  around the world, including the US, Canada, UK, Ireland, Germany, Italy,
Brazil, China, India, Pakistan, etc. Roche’s revenues during fiscal year 2010 were Swiss franc 47.49
billion.
Recently, the management of Roche is thinking of acquiring Genentech Inc., another biotechnology and
pharmaceutical company located in San Francisco, California, United States. Genentech markets itself as
a research-driven corporation that follows the science to make innovations. They employ more than 1,100
researchers, scientists and postdocs and cover a wide range of scientific activity. Currently the focus of
their efforts is on five disease categories: Oncology, Immunology, Tissue Growth and Repair,
Neuroscience and Infectious Disease.
The CEO of Roche has hired us to advise whether they should acquire the Genentech company or not.

Question #1: What are the key areas to investigate in order to determine whether the acquisition is a
good idea or not?
Possible Solution:
A good answer will identify the following issues:
 First I would need to understand the rationale for the acquisition, that can be for:
 acquiring resources (increase capacity, increase distribution, broaden product line,
technology, human capital, R&D, brand name, customer base) or
 cost reduction (economies of scale, economies of scope).
 It is very important that the acquisition makes sense economically (having a positive NPV), but
we also need to look into the organizational issues (will potential synergies be realized, is the firm in
the position to perform the integration).
 In addition, I would assess the geographic differences of the two companies under discussion.
 Finally I would look into the likely response of competitors if the acquisition occurs and maybe
alternatives to acquisition and compare it to the acquisition itself (other acquisition targets? organic
growth instead of acquisition?)
Additional Information: (to be given to candidate upon request)
Purpose of the acquisition: increase profits

 The San Francisco company Genentech currently has 9 drugs in the market
 Both companies (Roche and Genentech) are selling their products globally
 The R&D department of Genentech is based in the same location with the HQ (San Francisco)
 Revenues from an approved drug of the San Francisco based company Genentech is USD $170
million
Drug authorization success rate for Genentech (show the following chart to the candidate)

 Out of all the drugs under Phase 1 clinical trial, 30% will move on to Phase 2
 Out of all the Phase 2 drugs, 40% will move on to Phase 3
 70% of the drugs under Phase 3 clinical trial will receive FDA approval
 Of the drugs that receive FDA approval, 90% will be actually launched to the market
Question #2: We just discovered that Genentech can improve the yield from Phase 2 to Phase 3 by
investing $500 million in the R&D technology. By how much should the yield increase so as to break
even?
Possible Solution:
Before the new technology, Genentech has 9 drugs in the market, it means:

 FDA approval: 9 / 90% = 10 drugs

 Phase 3: 10 / 70% ~= 15 drugs
 Phase 2: 15 / 40% = 38 drugs
 Phase 1: 38 / 30% = 127 drugs
To break even, the extra R&D cost needs to be equal to the revenue from extra drugs launched to market
because of the new technology. Assume that the present value of launching a new drug is $170 million.
To cover the $500 million extra costs, Genentech needs to launch $500 / $170 = 3 more drugs so as to
have 12 drugs in the market.

 FDA approval: 12 / 90% = 13 drugs

 Phase 3: 13 / 70% = 17 drugs
 The success rate from Phase 2 to Phase 3 must be: 19 / 38 = 50%
It means that the yield should increase by approximately 50% / 40% – 1 = 125% – 1 = 25%

Question #3: What are the potential risks involved with this acquisition?
Possible Answer:
The candidate should be able to recognize the different risks involved, including

 the strategic rationale

 likely response of competitors if acquisition occurs
 organizational issues: different locations for the HQ, integration of the two organizations
 profitability of the acquisition (NPV calculation)
 alternatives to the acquisition
Siemens Buys Bayer Diagnostics & Diagnostic Products Corp.
Case Type: merger & acquisition (M&A).
Consulting Firm: Siemens Management Consulting first round job interview.
Industry Coverage: healthcare: hospital & medical.
Case Interview Question #00629: The client Siemens AG (FWB: SIE, NYSE: SI) is a German
multinational engineering and electronics conglomerate company headquartered in Munich, Germany. It
is the largest Europe-based electronics and electrical engineering company. Siemens’ principal activities

are in the fields of industry, energy, transportation and healthcare. It is organized

into five main sectors: Industry, Energy, Healthcare, Infrastructure & Cities, and Siemens Financial
Services (SFS).
For the sake of this case, we will be talking about Siemens’ Healthcare sector only. The year was 2006.
Siemens just made 2 simultaneous acquisitions in order to fill a void in their product portfolio in the area of
diagnostics instruments.

 Firm 1 is Bayer Diagnostics with $1.4 billion in revenue per year.

 Firm 2 is Diagnostic Products Corp. (DPC) with $300 million in revenue per year.
Both firms would be incorporated into the Medical Solutions Diagnostics division of Siemens on January
1st, 2007. What are some of the things the client Siemens should consider during the post-merger
integration phase of these two acquisitions?

Additional Information: (to be given to candidate if requested)

1. Products
 Both Bayer Diagnostics and Diagnostic Products Corp. (DPC) produce automated lab testing
systems that use reagents to perform routine diagnostics tests.
 DPC focuses on very expensive, high quality equipment that costs around $1.5 million per
machine.
 Bayer Diagnostics sells the cheapest products in the industry at about $350,000 per machine and
focuses on high sales volume.
 Bayer Diagnostics’ machines can test for fewer conditions but has 8 times the throughput of
DPC’s machines.
 Overall, in this industry, the profits come from the reagents, not the machines (think of it as a
razor and blade model)
2. Customers

 Because of the price, DPC’s primary customers are large hospitals. Bayer Diagnostics sells to
private practices and small hospitals.
 Bayer Diagnostics has 15 times as many sales agents as DPC.
3. Geography

 DPC has 3 plants

 New Jersey plant produces machines
 LA and Wales plants produce reagents
 Bayer Diagnostics has 3 plants
 Dublin plant produces machines
 Massachusetts and London plants produce reagents
Possible Answer:
This case is intended to be very conversational without a rigid direction; the candidate needs to
demonstrate that they can think of all the important areas to consider after a post merger.

We need to start by understanding what are the products that each of the two companies are producing
and how these products are going to be integrated in the mother company.
The main focus will be in trying to consolidate as many functions as possible in order to save some
money and to use the distribution channels from each company to try to increase the revenues.

 We need to understand the markets in which these products are playing and look at the customer
base.
 We would also need to look at the location of the plants and the distance between these plants
and the customers of each company.
Finally another thing that needs attention is the cultural aspect of the integration. We should assess how
close or different the cultures of the two firms are and how easy it will be for them to integrate into one
company.

The candidate should focus on identifying possible functions to consolidate and make sure the
consolidation of functions will play a very important role in the success of the integration.

Here is a sample solution:

1. Procurement

 There is likely some cost benefit in buying a larger amount of inputs to both the machines and the
reagents
2. Manufacturing

 Several of the plants are in high labor cost areas

 The manufacturing techniques are likely similar, some plants can certainly be closed if utilization
is not too high
 Topics such as total cost of manufacturing, utilization rates, and scale economies should be
discussed
3. Sales force

 This is an important point; from the additional information given, it should be clear that the
compensation structure and customer relationships for the 2 firms are very different. How should
these be combined? And specifically, how can it be done without alienating the higher compensated,
but likely higher performing, DPC sales force?
4. Culture

 DPC is far more entrepreneurial. They will likely be concerned about being swallowed up by the
much large Bayer.
Bronx Zoo to Buy The World’s Only Dinosaur from Africa
Case Type: merger & acquisition (M&A).
Consulting Firm: IBM Global Business Services (GBS) second round summer internship job interview.
Industry Coverage: leisure & recreation.
Case Interview Question #00623: The client is the manager of Bronx Zoo. The Bronx Zoo is a large zoo
located in the Bronx borough of New York City, within Bronx Park. It is one of the world’s largest
metropolitan zoos, with some 4,000 animals representing about 650 species from around the

world.  The zoo comprises 265 acres of park lands and naturalistic habitats,
through which the Bronx River flows. The Bronx Zoo is part of an integrated system of four zoos and one
aquarium managed by the New York Wildlife Conservation Society (WCS).
Recently, there has been a discovery of a dinosaur in West Africa. It is believed to be the only dinosaur in
the world. The management of Bronx Zoo would like to investigate if purchasing the dinosaur is a good
project for their zoo.
You have been hired to help the client with the following questions:

1. How would you determine if purchasing the dinosaur is a good project for the Bronx Zoo?
2. If so, how would you determine the purchase price for the dinosaur?
3. How would you design the exhibit area for the dinosaur?
 What would be the size of the exhibit area?
 How would you route traffic around the exhibit area?
 How would draw the shape of the exhibit area in relation to the dinosaur and show how
the traffic is routed around the exhibit area.
Note to Interviewer:
Questions 1 and 2 should be presented first. Once the candidate has a good handle on the answers for
those two questions should the interviewer present Question 3. Question 3 is asking the candidate to
think outside the box.

Additional Information: (to be given to candidate if requested)

 The dinosaur is of the size of an elephant.
 The dinosaur can easily be transported from West Africa to the US.
 The age of the dinosaur is unknown.
 The dinosaur cannot reproduce as it is the only dinosaur in the world.
 The dinosaur is not violent but cannot interact with non-trained individuals.
 The Bronx Zoo has enough land to house the dinosaur and construct an exhibit area without
reconfiguring the existing park.
Possible Solution:
The candidate will probably ask what are the costs and revenues associated with this project. Do not just
give them the revenues and costs immediately. Ask them what they think the revenues and costs are
associated with the dinosaur purchase project and ask them to explain each one.
For Example: Ticket Sales.

How do you determine the revenue from tickets? Are you proposing a separate ticket for the dinosaur
exhibit? If so, then you can count those revenues. If you are proposing the same ticket for the zoo and
dinosaur exhibit, then not all the revenues from tickets will count. Only the revenues from the tickets in
excess of original ticket sales will count.

Relevant Data for Questions 1 and 2 (wait to see if the student asks for this relevant information before
giving it to them):
Revenue per year

 Tickets = $2 million
 Hotels Accommodations = $1 million
 Movie & Entertainment Licensing = $0.5 million
 Food in the park = $0.5 million
 Merchandise = $0.25 million
 Research = $0.25 million
Cost

 Fixed Costs
 Cost of the dinosaur = ?
 Exhibit Area and Housing Area = $15 million
 Variable Costs (per year)
 Staff to serve the dinosaur = $1 million
 Food & Merchandise sales = $0.25 million
 Operations = $0.25 million
Expected Lifespan of Dinosaur = 50 years
Current Age of Dinosaur = 20 years
Discount rate = 10%

The candidate will probably ask the interviewer for actual numbers associated with the revenues and
costs. While the actual numbers are not that important, it is important that the candidate realize that just
having the sum of the revenues greater than the sum of the cost is not enough.

The candidate needs to realize that this is a net present value (NPV) problem and the project lasts as
long as the dinosaur is alive. It is important to determine the age of the dinosaur. Since the client Bronx
Zoo does not know the age and the average lifespan of the dinosaur, the candidate should suggest ways
of determining the age and lifespan of the dinosaur. Some suggestions could be asking anthropologist,
DNA testing, fossil testing, and etc.

Besides knowing the expected lifespan of the dinosaur and all the revenues and costs, the candidate
needs to ask about the discount rate. Now with all the information, the candidate can determine the
maximum ammount of money (brean-even price) the client could pay for the dinosaur. Again, the
calculations are not important but knowing the right equation is.

NPV = Fixed Cost – [ (Revenues – Variable cost) / discount rate ]

(assume annual revenues and variable costs are static over time to simplify the equation)

To solve for maximum price of the dinosaur, assume the minimum NPV = 0.

Question 3: How would you design the exhibit area for the dinosaur?
Possible Answer:
a. What would be the size of the exhibit area?

The candidate should ask about the size of the dinosaur before recommending the size of the exhibit
area. An example answer will be – Since the dinosaur is of the size of an elephant, a football field will be
a good size area. If the dinosaur is at the other end of the field, the spectators will still be able to see the
dinosaur.

Suppose the exhibit area is round with a diameter of 100 yards, what is the circumference of the exhibit
area? Circumference = PI * Diameter

The candidate should realize that there will be a heavy demand to view the dinosaur. Spectators will be
coming from all over the world to see the world’s only dinosaur. It is important to cycle the spectators
through the exhibit area so they have an enjoyable visit and the client is able to get as many spectators
through as possible in a day.

b. How will you route the spectators around the exhibit area?

If the candidate proposes having the spectators walk around the exhibit area in either a clockwise or
counter clockwise direction, have them explain how they will prevent traffic from collecting around the
location the dinosaur is at.

Ideal Situation – Every spectator has the same view.

Not the ideal situation – The spectators at A and B don’t have the same view. Traffic will likely build up at
B. Ask the candidate, how can you prevent this from happening?

Again, there is no right or wrong answer. An example will be – Make the exhibit area like an amusement
ride. Therefore the client can prevent traffic from building up and the client can control the cycle time the
spectators spend in the exhibit area. Another good answer is to have an exhibit area that has multiple
levels so the client can cycle more spectators through.

Note:
 The right candidate to this case should quickly focus on the Net Present Value (NPV) equation
and what the revenue and cost of this project are.
NPV = Current Upfront Cost – Present Value of (Annual Revenues – Annual Cost)
 Revenue should be broken down into all the possible avenues that will generate sales. Cost
should be broken down in all the possible costs that are associated with the project.
 The candidate should realize that the dinosaur does not live forever therefore the revenue stream
would disappear as soon as the dinosaur dies.
 Also, an outstanding candidate will discuss potential risks associated with the project, for
example:
 The dinosaur could die of diseases in North America.
 No zoo in the world has ever cared for a dinosaur before. The creates a host of unknown
problems that could drive up costs.
 The dinosaur may be more able to attack or hurt spectators then normal animals, thus
raise liability risk.
UCI Cinemas Chain to Buy Cinema Firenze of Florence
Case Type: merger and acquisition (M&A).
Consulting Firm: L.E.K. Consulting first round summer internship job interview.
Industry Coverage: entertainment.
Case Interview Question #00619: Our client UCI Cinemas (United Cinemas International) is a brand of
cinema chain, currently operating in Austria, Germany, Republic of Ireland, Italy, Portugal and Brazil. The
chain is owned by Odeon & UCI Cinemas Group whose ultimate parent is leading U.K. based private

equity firm Terra Firma Capital Partners.

Currently UCI Cinemas has several movie theaters located in Rome and Milan. The CEO of UCI Cinemas
is planning to expand the chain in Florence (Italian: Firenze), a city with a population of 370,000. He has
found an interesting theater in the center of Florence that would sell for €2.5 million. “Cinema Firenze” has
only one room that holds 400 seats and is open 50 weeks a year. The theater runs 4 shows per day in
mid-week and 6 shows per day during the weekend.
The CEO of UCI Cinemas has retained your consulting firm to understand if they should go through with
the acquisition. What would you tell him? What factors would you consider?

Possible Solution:
Ultimately the decision of whether to go with the acquisition falls on the projected profitability of the
acquisition target Cinema Firenze. “Profits = Revenues – Costs” seems the most useful framework here
in this case.
An ideal candidate will be able to list the main drivers of revenue and cost streams. An outstanding
candidate will also drive the analysis and make reasonable assumptions over revenue and cost drivers.
He or she should also understand what possible synergies might be exploited.
Interviewer: So, tell me how would you approach this decision?

Candidate: May I ask why the client UCI Cinemas wants to buy this new theater in Florence?

Interviewer: What do you think?

Candidate: I guess that our client wants to acquire this movie theater in Florence so to increase the
overall profits of its business, but there may be other important reasons for this decision.

Interviewer: Of course, there are other important aspects to consider such as the brand image,
geographic expansion, etc. But for now let’s stick with the profitability analysis.

Candidate: Thanks. In order to estimate the value of the investment I need to estimate the annual cash
flow of Cinema Firenze and the trends. Since profits = revenues – cost, my first breakdown of the problem
is the analysis of sales and cost.

Interviewer: OK. Let’s start with the revenue side of the equations. What do you think are the major
source of revenues of this cinema?
Candidate: The major sources of revenues of a cinema are tickets sales and concessions. The movie
theater can also make money advertising before films.

Interviewer: Perfect, first let’s concentrate now on ticket sales. How much do you think that is?

Candidate: Revenues from tickets sales can be calculated from the average price time estimated number
of tickets sold per year.

Interviewer: What information do you need to calculate that?

Candidate: I need to know the average ticket price and the numbers of clients per year.

Interviewer: Correct. For the sake of simplicity, let’s assume that the average ticket price is €8. Now, how
would you calculate the number of tickets sold per year?

Candidate: In order to calculate the tickets sold every year we need to know how many shows we have in
one year, the average utilization and the capacity of the cinema. In order to make our approach more
accurate I intended to analyze separately weekend utilization from weekday utilization. I will estimate
both.

Interviewer: OK, how would you calculate this average utilization?

Candidate: Assuming that we have:

Number of
Shows/day Days shows Utilization

Weekday 4 5 20 20%

Weekend 6 2 12 40%

Weighted Average Utilization 27.5%

The utilization is the weighted average of weekday and weekend utilization.

Weighted average utilization = (20% * 20 + 40% * 12) / (20 + 12) = 27.5%

Interviewer: How would you verify if this estimated utilization is correct?

Candidate: I would compare it with one of our client’s theaters in Milan or Rome.

Interviewer: OK, consider that the most successful movie theater in Rome, “L’Adriano” has an average of
35% utilization over the year.
Candidate: Then I’d say that and estimated 27.5% utilization for a famous theater in Florence is plausible.

That gives an average ticket sale of 400 * 27.5% = 110 tickets per show. There are 32 shows per week,
50 weeks/year, 110 tickets per show, which makes a total of 32 * 50 * 110 = 176,000 tickets per year.

With €8.00 per ticket we have a total annual revenue of approximately 176,000 * €8.00 = €1.4 million from
tickets sales.

Interviewer: OK, let’s now calculate the revenues from advertising. Please make assumptions.

Candidate: I would say the revenues from ads are proportional to traffic or sales. Let’s assume €4 per
ticket sold, which gives 176,000 * €4 = €700,000.

Interviewer: That’s fair. What about concessions?

Candidate: I assume the concession stand will sell to 40% of customers, at an average price of €3/sale,
so it’s going to be: 176,000 * 40% * €3 = €211,000 per year. Do we know the margin on those purchases?

Interviewer: It’s very high, assume 90%.

Candidate: So net profits from the concession stand are 90% of €211,000 = €190,000. Summing it all up,
total revenues are 1,400,000 + 700,000 + 190,000 = €2,290,000.

Interviewer: Good. I’ll give you some information for the cost side of the equations:

 10 people working at the cinema for an average annual salary of €60,000 each
 Operating expenses €250,000 per year
 Film fee: 50% of ticket sales
 Rent: €40 per square meter per month, total area 1,000 square meters
Candidate: So the costs per year are:

 Personnel: 10 * €60,000 = €600,000

 Operating expenses: €250,000
 Film fees: 50% of €1,400,000 = €700,000
 Rent: €1,000 * 40 * 12 months = €480,000
 Total costs. €600,000 + €250,000 + €700,000 + €480,000 = €2,030,000
 Profit before taxes = €2,290,000 – €2,030,000 = €260,000
Assuming 30% in taxes, net income is about €260,000 * (1 – 30%) = €182,000

Interviewer: Correct. Is it a good business?

Candidate: I would say, €2.5 million for a yearly profit of €182,000 per year is not a fair price. With an
interest rate of 10%, we need at least €250,000/year of cash flow. I would strongly advise against this
acquisition.

Interviewer: But, how do you know it’s not a good business? What’s the percentage over sales?

Candidate: €182,000 / €2,290,000 = 7.9%, it’s about 8%, but I wouldn’t acquire the business for €2.5
million, which was our primary question. Anyhow, we own several movie theaters; we should compare our
results with these numbers we just found to understand if it’s a solid business in itself.

Interviewer: Exactly, that is the point. The CEO is aware that 8% is a low figure, but he is a very stubborn
person and says he wants to acquire this theater anyway. What’s the course of action?

Candidate: Well, if the CEO is set to buy anyway, he should:

 Bargain over the price

 Understand possible synergies that might increase profitability
Interviewer: Right, I’d suggest haggling too, and how would you make this business more profitable?

Candidate: Profit is revenues (volume and price) minus costs. Off the top of my head, we could try the
following ways:

 invest to increase the volume of purchases,

 start a marketing campaign,
 devise partnerships with local shops to publicize their product in exchange of increased visibility
for our shows,
 find out if we’re airing the right movies for the local clientele,
 lower prices to drive business for unpopular show times.
Interviewer: OK, all good ideas, and what on the costs side?

Candidate: If we acquired this business, we could bargain the fees as a movie theater chain rather than a
single interlocutor and could leverage our increased bargaining power against film distributors.

Interviewer: That is correct. Thanks.

Johnson & Johnson DePuy in Merger Talks with Synthes

Case Type: human capital, HR, organizational behavior; merger and acquisition (M&A).
Consulting Firm: Monitor Group second round job interview.
Industry Coverage: healthcare: hospital & medical.
Case Interview Question #00614: Synthes Holding AG (formerly Synthes Stratec, SIX: SYST) is a
multinational medical device company based in Solothurn, Switzerland. It is the world’s largest maker of
implants to mend bone fractures, and also produces surgical power tools and advanced biomaterials. The
company’s shares are listed  on the SIX Swiss Exchange and the firm is a
constituent of the Swiss Market Index (SMI), Switzerland’s blue-chip stock market index.
DePuy is a franchise of orthopaedic and neurosurgery companies. Acquired by American medical devices
and pharmaceutical giant Johnson & Johnson (NYSE: JNJ) in 1998, its companies form part of the
Johnson & Johnson Medical Devices & Diagnostics group. DePuy develops and markets products under
the Codman, DePuy Mitek, DePuy Orthopaedics and DePuy Spine brands.
On April 27, 2011, DePuy and Synthes agreed to a merger deal. The merger will create the world’s
largest orthopedic corporation DePuy Synthes. A combined DePuy-Synthes unit could potentially be
worth USD $46 billion. For this case, they need your assistance on the human capital side to make sure
that the merger is successful. How would you go about this case? What are some of the issues you would
focus on?

Suggested Approach:
Case structure is really important here in this “Human Capital/Organizational Behavior” and “Merger &
Acquisition” case. Make sure the candidate touch on all points highlighted below and explain why each
point is important.
 Project Plan
 Leadership Alignment
 Organization Re-design
 Talent retention
 Communication
 Culture
 Synergies
Possible Solution:
Interviewer: So, what are the elements that we should focus on?

Candidate: Well, I think we should look at the following elements:

 Project Plan
 Leadership Alignment
 Organization Re-design
 Talent retention
 Communication
 Culture
 Synergies
Interviewer: Great. Let’s go through each item individually. What are the elements of a project plan?
Candidate: The project plan would have

 a list of prioritized business needs,

 ideas on how those actions would be completed,
 set timelines and milestones.
Interviewer : Good. Now, let’s turn to leadership alignment. Why is it important to align the leadership?

Candidate: A successful merger cannot depend on momentum coming just from the very top. It has to
come from many levels in the organization. To ensure this we need to work with the leadership to identify
key stake holders.

Interviewer : How would you go about aligning the leadership?

Candidate: We will

 Have merger teams on either side who are working on the integration, this should include key
influencers and stakeholders
 Get buy-in from key influencers and stakeholders throughout the organization
 Include these teams in our plans and incorporate their inputs, get their perspective into the project
plan. This will give them a sense of ownership, and help in keeping the momentum going leading to a
successful integration
 Be clear to these teams that
 The merger is going to happen
 identify what are the ways the merger is going to affect them
 what are the conflicts they may face
 what kind of resources do then need
 what are the critical things that they are working on that might affect the merger.
Interviewer: Good. Now what about organizational re-design?

Candidate: There is an overall business strategy that’s driving the change in the first place. We need to
create an effective organization that matches the broad business strategy so that the business objectives
can be achieved.

 The main incentive here is to create a new organization or re-organize so that it is aligned with
the business strategy that is driving the change in the first place
 Identify the requirements of the new organization and compare it to the inventory of existing
capabilities
 Take inputs from all levels to do this
 Identify the talent base that we have available, their competency and find the top performers
 If there are gaps, recruit from outside if necessary
Interviewer: Good. Now, let’s look at the challenges. Why is talent management important?
Candidate: There is an insecure environment. Talented people are highly marketable. Don’t give them a
chance to consider leaving. Convince them that they will be valued in the new organization.

Interviewer: How could we do that?

Candidate: Look look at 2 aspects – one is talent retention during the transition period and other is talent
management for the new entity.

Transition

 When there is change/merger/re-organization, there’s always uncertainty

 The most talented people are the ones most likely to leave for other, more secure places
 To prevent this you should reach out early to them and make sure that you explain the change to
them
 Work with HR to implement retention strategies focused on your top employees.
Post-Merger Talent Management

 Common performance management systems – what metrics to evaluate, how do you do annual
reviews, is there mid term reviews, etc.
 Harmonize compensation plans, benefit plans, pension plans
 Create global talent management programs – how do you reward high performers, mentoring
programs, rotation, etc.
Interviewer: Good. Now, what can you tell me about communication?

Candidate: Communication is key to ensure morale and productivity remain high. There are 2 different
types of communication: internal communication and external communication.

Internal Communication

 Times of transition create all sorts of rumors through the organization

 These rumors can worsen the problem of talent retention and cultural clash
 Best way to tackle this is to communicate early and communicate often
 Keep communicating the progress of the reorganization, the reason for it, the final objective and
how the transition is coming along
 If necessary, repeat the same message over and over even if there is nothing new to report
 And make room for 2-way communication so top leadership is aware of the rumors and emotions
floating around at the lower levels and can address them squarely
 Remember that any empty communication space will be occupied by rumor and speculation, so
don’t allow it.
External Communication

 Present unified face to the external world

 Keep our business partners, our customers, our suppliers apprised of the developments
 Have press conferences
 Press releases
 Interviews
 Public event sponsorship
Interviewer: Good. Now, what can you tell me about the culture?

Candidate: Culture is deep rooted and there is no way to change them quickly. It’s something that
happens over time.

 Culture is the most difficult challenge to manage – it’s usually very deep-rooted and intangible, so
don’t try to change it overnight
 Focus on areas where cultural fit is most important, such as the areas in which the two merged
entities directly communicate
 In these areas, try and build a new culture by creating a new brand or identity for the merged
entity
 Highlight the importance of cultural issues to business value so that you get buyin from
management.
Interviewer: Great. Now what can you tell me about cost synergies?

Candidate: There may be cost synergies that we need to look into which may involve lay-offs which could
be another challenge that the organization will face.

Note: The candidate should not insist that we need to cut people, etc. Remember, this is a human capital
case and not cost reduction. He/she must be sensitive to the issue.

Interviewer: Good. What other decisions are there to make?

Candidate: I would also think of the following:

 Which companies processes to adopt

 Build a shared services platform
 Enterprise wide HR system
 New IT system
 Harmonize compensation plans, benefit plans, pension plans
 Create global talent management programs
Interviewer: Very good. I think you have done a wonderful job. Do you have any questions for me?

Unilever Acquires Premium Haircare Brand TIGI Linea

Case Type: improve profitability; merger and acquisition (M&A).
Consulting Firm: OC&C Strategy Consultants second round job interview.
Industry Coverage: household goods & consumer products.
Case Interview Question #00604: You are an associate working in OC&C Strategy Consultants. Last
week, you received a call from Toni, an old friend from college. Toni studied chemistry in school and had
gotten a job with multinational household products and consumer goods

company  Unilever after graduation. When the economy went sour in the late
1990’s, Toni got laid off and began cutting hair at a salon to make ends meet. In 2002, Toni quit the salon
to start TIGI Linea Corp., a premium haircare products business. TIGI Linea has been a tremendous
success. The company has four major product lines: shampoos, conditioners, color products and styling
products. Nearly all retail sales of TIGI Linea products are through high-end salons.
Toni scheduled a lunch with you today in order to catch up but also to ask about some issues related to
his company. After you get a table and chat for a while, Toni says the following: “I think I’m ready to sell
TIGI Linea It’s been over ten years and I need a break. The business has been growing since day one
and I’m sure it will sell for a nice number, especially in this economy. However, before I talk to anyone, I
want to know what I should expect to hear. I want to know what an investor is likely to think of TIGI Linea I
also want to know what kinds of things I can do to make TIGI Linea more attractive. I’ve prepared some
financials since I knew you’d ask for them.”
Toni hands you a sheet of paper with the following financial data (in million USD) and sits back in his
chair.
CAGR (compound annual
Year 2005 2006 2007 2008 2009 2010 growth rate)

Revenue 25 35 49 64 90 114 29%

COGS (cost of goods sold) 7 10 14 21 32 50 39%

Gross Margin 18 25 35 43 58 64 24%

Sales & Marketing 2 3 4 6 9 13 37%

Research & Development 1 1 1 1 2 2 12%

General & Administrative 7 10 14 19 24 28 26%

EBIT (earnings before interest

and taxes) 8 11 16 17 23 21 17%

This case has two parts:

1. Assess TIGI Linea Corp. from the perspective of a potential buyer by commenting on the financial data
provided and gathering more information from the interviewer.
2. Recommend specific ways in which the business could be improved given the information made
available.

Possible Answers:
1. Business Assessment

The obvious problem facing TIGI Linea Corp. is the decline in profitability from year 2009 to 2010. The
candidate should quickly point this out and then spend time discussing the causes of this decline. A
simple profitability framework is likely to be most useful. Issues for discussion include:

a. Declining Gross Margins: COGS is clearly growing faster than revenue. The reason for the decline is
related to a change in TIGI Linea’s sales mix. When requested, the following information may be
provided.

Year 2005 Year 2010

Colo Stylin
Shampoo Conditioner r g Shampoo Conditioner Color Styling

Gross Margin (million

USD) 70 75 60 N/A 67 74 54 30

% of Sales 75% 20% 5% 0 57% 11% 4% 28%

The addition of styling products is the most significant reason for the overall decline in gross margin. The
candidate should spend some time considering reasons why margins in Styling are so much lower.

TIGI Linea has not been able to leverage its strong brand in Shampoos and Conditioners since it entered
the Styling market in 2006. Consumers believe that TIGI Linea styling products are of above average
quality but are inferior to products offered by companies that only offer styling products. TIGI Linea has
resorted to discounting in order to get salons to carry its styling products.

Margins for TIGI Linea’s other products have also declined due to falling prices. It is likely that the line of
styling products is having a negative impact on TIGI Linea’s other lines.

b. Sales & Marketing Expense: Spending on sales and marketing is clearly growing at a faster rate than
revenue and has contributed to the decline in EBIT. One reason is that TIGI Linea has spent heavily to
promote the Styling line. Another is that TIGI Linea is beginning to saturate the salon market and must
now spend more to create new customers.
c. Low R&D Spending Growth: Spending has not kept pace with revenue growth. There is likely a
connection between the lower perceived quality of the styling line and the under-investment in R&D.

2. Improvement Opportunities

The candidate should recommend that TIGI Linea do something about its styling line. If the
recommendation is to drop styling, some way of replacing 30% of revenue must be suggested. One
solution is to begin selling TIGI Linea products in other channels (i.e. supermarkets, drug stores and/or
mass merchandisers.)

Alternatively, the candidate may suggest that TIGI Linea increase investment in R&D and improve the
styling product line. However, altering consumers’ perceptions will be difficult. One solution is to launch a
re-branding campaign once changes to the styling products have been made.

The candidate should also address the market saturation issue. It seems likely that revenue will not
continue to grow at 30% per year unless new channels are tapped or new products are introduced. Given
that TIGI Linea has had difficulty with introducing new products, new channels are the most likely the best
source of growth.

If selling through new channels is recommended, consideration must be given to the following: Would
sales in other channels simply divert sales from the salons or would they result in an increase in total
sales volume? Would prices remain the same in other channels? What costs must TIGI Linea incur when
entering a new sales channel?

3. Math Problem

Suppose that TIGI Linea is going to sell its shampoo product line in drug stores. Ask the candidate to
write an equation or solve for the average price in drug stores that is required to create 10% growth in
current salon-only revenue:

Average drug store price * Drug store volume + Post-DS salon volume * Post-DS average salon price =
Current salon volume * Current average salon price * (1 + 10%)

What is the required drug store price if:

Current Salon Volume = 100
Current Salon Average Price = $5 per unit
Post Drug Store Salon Volume = 80
Post Drug Store Salon Price = $5
Drug Store Volume = 50

Possible Answer:
Average Drug Store Price * 50 + 80 * $5 = 100 * $5 * (1 + 10%)
Average Drug Store Price = $3
Advanced Medical Optics Buys IntraLase for $808 Million
Case Type: merger and acquisition (M&A).
Consulting Firm: PricewaterhouseCoopers (PwC) Advisory first round job interview.
Industry Coverage: healthcare: hospital & medical.
Case Interview Question #00598: Our client Advanced Medical Optics, Inc. (AMO, NYSE: EYE) is a
global medical supply company and one of the leading manufacturers of eye surgery equipment. AMO is
based in Santa Ana, California, and employs approximately 4,200 worldwide. The company has

operations in 24 countries  and markets products in approximately 60 countries.

In February 2009, Advanced Medical Optics was acquired by global pharmaceuticals and healthcare giant
Abbott Laboratories and was renamed Abbott Medical Optics.
AMO’s products in the ophthalmic surgical line include laser vision correction systems, intraocular lenses,
phacoemulsification systems, viscoelastics, microkeratomes and related products used in cataract and
refractive surgery. The company also produces lasers for post-operational procedures and adjustments.
They don’t actually make the lasers or devices used for LASIK (Laser Assisted in-Situ Keratomileusis) –
rather, they are complementary products for this procedure.
The global market for these devices is growing, but at a declining rate. As a result, the client AMO wants
to get into a higher growth area, so they are looking at acquiring a company called IntraLase Corp. that
makes inter-ocular devices. These devices are used instead of LASIK but with similar effectiveness, and
they are used for two major categories of patients:

 Patients with cataracts (a clouding that develops in the crystalline lens of the eye or in its
envelope (lens capsule), obstructing the passage of light)
 Refractive surgery to correct near sightedness (myopia) or far sightedness (hyperopia)
How would you approach this opportunity? What would you look at?

Additional Information: (to be given to candidate if asked)

The U.S. population is roughly 300 million:

 75% of the U.S. population over 65 has cataracts

 Assume that the U.S. population is evenly distributed over 80 years, and the same number of
people are each age
 When someone turns 65, they have a 75% chance of getting cataracts, and if they don’t get it
immediately they will never get it
 1/3 of the U.S. population is near-sighted and 1/4 of the population is far-sighted, so 175 million
people in the U.S. need vision correction of some kind
There are government caps on pricing for cataracts surgery and that there is substantial competition from
major national players.

The refractive market is still very fragmented and growing rapidly – 1.5 million surgeries per year will grow
to 3-4 million as procedures become safer. Also, the patient pays 10 times as much for refractive surgery
as a cataracts patient would pay.

Also, the candidate asked about the specifics of what the machines were so as to consider synergies
between the two companies and product offerings. There would be significant synergies and that is a
component of answering the case.

Suggested Approach:
Given that we’re looking at a company with an existing product line that is exploring moving into a related
product line, we need to understand any links between the two. It is vital that the candidate demonstrates
his/her acknowledgement of the risks of cannibalization and the benefits of synergy between the old and
new lines.

Also key is to show an understanding of some of the basics of mergers and acquisitions (M&A). On a high
level, a framework looking into internal factors of both the target company IntraLase Corp. and the
acquirer AMO (such as culture, finances, and the synergies there might be between the two), external
factors such as market trends and competition, and customer factors (both doctors and patient segments)
is necessary. The candidate should also remember the significance of the valuation of the target company
– is it worth the asking price.

This M&A case is fairly simple if you hit the numbers – take your time and get them right. The overall
framework was very helpful as the candidate was able to reference it multiple times during a fairly focused
case discussion. The key is identifying that there will be different types of customers for each product
offering, so suggesting identifying customer segments up front seemed to be a major plus.

Possible Answer:
Candidate: First, I would look into internal factors of both the target company IntraLase Corp. and the
acquirer AMO (such as culture, finances, and the synergies there might be between the two), external
factors such as market trends and competition, and customer factors (both doctors and patient
segments). Related to all of these would be the valuation placed on the target company. If we could, I’d
like to start with drilling down on the customers.

Interviewer: OK, I like that. So let’s talk about the cataracts patients. If I were to tell you that 75% of the
U.S. population over 65 has cataracts, how many potential patients are we talking about?

Candidate: Well, I know that 12% of the U.S. population is 65+, so let’s call that 10% for simplicity. 10% of
300 million is 30 million. 75% of that is 22.5 million. But some of those people might already have had
surgery.
Interviewer: Good point. And it gets a little dicey because the segment would be skewed towards 65. So
here is a simplifying assumption – let’s assume that the US population is evenly distributed over 80 years,
the same number of people are each age. When someone turns 65, they have a 75% chance of getting
cataracts, and if they don’t get it immediately they will never get it. What’s the market size thinking this
way?

Candidate: OK, so we have 300 million people over 80 years. That’s 3.75 million people in each year age
bucket. So it would be 3.75 million people turning 65 every year. If 75% of them get cataracts, that’s
roughly 2.9 million people a year. Plus some percentage of the population already over 65, I’m thinking
right around 3 million people a year.

Interviewer: Does that make sense?

Candidate: I don’t know a lot about cataracts, but it seems to. I’m not sure all of those people currently get
laser eye surgery, though.

Interviewer: Right. OK, now let’s turn our attention to the refractive surgery market. So your research tells
you that 1/3 of U.S. the population is near sighted and 1/4 of the U.S. population is far sighted. Assume
that those numbers already include those who’ve had their vision corrected.

So, wow many people are we talking about for the potential market size?

Interviewer: 1/3 + 1/4 = 7/12; 7/12 * 300 million people total = 175 million people (shortcut: 1/3 of 300 =
100, 1/4 of 300 = 75, 100 + 75 = 175 million)

Interviewer: Right. And it turns out that it translates to 1.5 million people a year actually getting refractive
surgery. So if we acquire this company and can position it as a cataracts provider or a refractive surgery
provider, which should we position it as? (Note: the machinery would be slightly different, enough so that
it would be beneficial to go after one market or the other).

Candidate: OK, so I know that the cataracts market is around 3 million a year and the refractive surgery
market is 1.5 million a year. But I don’t know anything about profitability so I can’t really say. Can you tell
me a bit about the markets?

Interviewer: What do you want to know?

Key information to give to candidate: There are government caps on pricing for cataracts surgery and that
there is substantial competition from major national players. On the other hand, the refractive market is
still very fragmented and growing rapidly – 1.5 million will grow to 3 – 4 million as procedures become
safer. Also, the patient pays 10 times as much for refractive surgery as a cataracts patient would pay.

Candidate: So based on what we just discussed I’d like to target the refractive surgery market.
Interviewer: Is there anything else you would want to know before making a decision to buy the target
company IntraLase?

Candidate: I’d need to know more about the financials to give a clear answer. I’d also need to better
understand the synergies and how they’d be perceived in the market. However, it looks promising given
our examination of the market segments.

Interviewer: Excellent!

Sinopec to Buy Argentinean Oil Company in Indonesia

Case Type: merger & acquisition (M&A).
Consulting Firm: Schlumberger Business Consulting (SBC) first round job interview.
Industry Coverage: Oil, Gas & Petroleum Industry.
Case Interview Question #00505: Sinopec Limited (China Petroleum & Chemical Corporation Limited,
NYSE: SNP) is one of the major petroleum companies in China, headquartered in the Chaoyang District
of Beijing. As a state-owned company, Sinopec’s business includes oil and gas exploration, refining, and

marketing;  production and sales of petrochemicals, chemical fibers, chemical

fertilizers, and other chemical products; storage and pipeline transportation of crude oil and natural gas;
import, export and import/export agency business of crude oil, natural gas, refined oil products,
petrochemicals, and other chemicals.
Recently, Sinopec is interested in acquiring an Argentinean owned oil company in Indonesia. Your
consulting team has been engaged to conduct a preliminary investigation if this is a good investment idea
to proceed and what key areas to focus going into the due diligence round. You have been given the task
of assessing this situation for the client. How would you go about the case?
Clarifying Questions about the client & environment:
 Oil & gas is a government regulated industry in China and in Indonesia. The government awards
acreages to oil companies.
 The client Sinopec is a low cost producer and has the ability to reduce cost from utilizing its own
technology and staff.
 The purchaser/client can opt to drop any acreage from portfolio to be bought.
Suggested Approach:
The candidate should look at this situation on a broad scale. Use 3C’s framework (Company, Customers,
Competitors) andmarket assessment approach to try and uncover key issues. This case needs to be
driven by the candidate and the following additional information could be given by the interviewer only if it
is asked for.
Additional Information: (to be given to candidate if asked)
1. Target Acquisition Company

1.1 Target company has 5 concession areas

 2 producing acreages are mature acreage, and in declining production.

 Smaller fields exist that is undeveloped
 Opportunity exists in upside resources. 2:1 of undeveloped:developed reserves*
 However, production will need to continue for the next 10 years to produce all reserves
 In one of the two acreages the seller is the majority share holder.
 1 non-producing acreage
 Contains gas mostly.
 The seller is the majority share holder.
 2 exploration acreages
 Benchmark with adjacent blocks shows no potential for oil/gas discovery.
 The seller is the majority share holder.
*Reserves = oil/gas quantities identified to be produced with existing technology

1.2 Operations staff: Expatriate and local

 Expatriate staff will want to leave. Expatriates are mostly managers and senior professionals.
 Local staff will stay but they are mostly in junior staff positions.
 Expatriate staff is very expensive compared to local and the client’s own staff.
1.3 Currently oil price: $120/bbl

2. Customer:

 Local oil refinery

 Local refinery buys oil from target company and exports processed oil to Singapore by
shuttle tankers.
 There will be no change to arrangement after the acquisition.
 Local gas grid and town exists.
 Demand for gas is pretty high since diesel (a substitute for gas) subsidies have been
decreased.
 Electricity demand is also high because of growth in local industries and population
growth.
 There is certain potential for additional sales.
3. Competitor

 None, due to the exclusive negotiations rights between the client and the seller.
 There is no preemption by remaining partners.
4. Government
 The Indonesian government does not want reduction in local content in workforce. They would
not accept firing of local staff.
 Contract on producing assets expiring in 3 years but production (existing + potential) will continue
beyond expiry period.
 Negotiations for concession contract extension are needed.
Possible Answers:
1. Potential reasons this is a good investment idea:

 Upside potential exist with small undeveloped fields. The ratio of 2:1 of undeveloped vs.
developed fields.
 Undeveloped acreage with gas that can be sold to local gas grid/power plant.
 Drop exploration acreages. No prospects based on adjacent areas.
2. Potential reasons this is a bad investment idea:

Concessions expiring before all the production is recovered. Production forecasted for 10 years for full
value of assets but concession expiring in 3 years. Value lie outside of concession contractual, i.e. 7
years of production not legally owned by the buyer/client. Outcome with government negotiations
uncertain.

Need to negotiate gas sales contract. Tricky given that market is highly regulated and local power
producers may not want to pay in U.S. Dollars which exposes the gas seller to local currency fluctuations.

Challenge in keeping expatriate staff & slowly introducing the client’s own staff over time. Technology
transfer and handover may not be smooth as expatriate staff may want to leave immediately as they do
not see any prospects working for less money!

The interviewer should ask the candidate for ideas on how to ensure expatriate staff do not leave
immediately after sale transaction. One suggestion is to put in a clause in the Sales Purchase Agreement
for the transaction requiring that expatriate staff stay for at least 6 months to 1 year to ensure transfer of
knowledge, in return the client agrees to pay their salaries and full benefits.

Hormel Foods to Sell Spam Luncheon Meat Division

Case Type: business turnaround; merger and acquisition (M&A).
Consulting Firm: Bain & Company second round job interview.
Industry Coverage: food and beverage.
Case Interview Question #00502: Our client Hormel Foods Corporation (NYSE: HRL) is a $8 billion food
processing company based in Austin, Minnesota, United States that produces mainly raw meat. Hormel
sells food under many brands, including the Chi-Chi’s, Dinty Moore, Farmer John, Herdez, Jennie-O,
Lloyd’s and Stagg brands, as well as under its own name Hormel. The company
is listed on the Fortune 500 and is one of the S&P 500 Components.
Five years ago, the client has acquired a branded pre-packaged prepared meat company named Spam
(derived from SPiced HAM) that produces packed pre-cooked meat product such as sausage, hot dogs,
ham, etc. Soon after the acquisition, the parent company Hormel noticed that the branded, pre-packaged
meat division Spam was losing money. You have been hired to diagnose the problem. How would you go
about it? What recommendations would you provide them to turn around the pre-packaged meat division?
Possible Answers:
This case starts off as a business turnaround scenario, later on changes into a “selling business & exit”
case.

Candidate: From a macro level, there are several issues we can examine here. Let’s start by looking into
profitability of this pre-packaged meat division. First of all, I would like to look into the revenue drivers and
the cost drivers. Can you tell meanything regarding the trend in sales and prices for this division?
Interviewer: The sales have dropped from $500 million to $400 million due to a product rationalization.
The prices have remained constant.

Candidate: Well, has the client rationalized the proper products? How did the client come to these
decisions? Were they based on a percentage of sales or on true profitability such as a measure like EVA
(Economic Value Added)? Perhaps we can examine by what instrument/metrics the client rationalized its
product base.

Another possibility is to examine the product mix and compare them to customer preferences and market
positioning. How has overall profitability of the division improved from the product rationalization?

Interviewer: This is a good question. It turns out that the client was very successful with the product
rationalization. Our brand is a lower end brand and customers are satisfied with the product. The product
rationalization was very successful – the client was able to cut out the correct products. Profits for these
products went from ($20M) to $80 M. But, overall, the division is still losing money.

Candidate: So, the cost side of the equation is our next step. How has the cost structure changed for the
division?

Interviewer: The costs have remained constant as a percentage of sales since the acquisition.
Candidate: Costs have remained constant? Well, this could mean that the company is not taking into
account the synergies from the merger & acquisition. Let’s examine a series of costs that could be
optimized. Let’s start with overhead. Have the overhead costs and central functions been merged where
necessary? What is the overall divisional structure of the firm?

Interviewer: The management is very lean in this division. There is one marketing executive, one finance
executive, one operations, etc. They share legal assistance and some other general functions with the
parent company. This is not an area of large costs and not really an area of concern – in fact, costs in this
area have slightly decreased.

Candidate: All right, let’s now look at manufacturing costs. How have manufacturing costs changed? Has
the firm taken advantage of economies of scale, capacity utilization, and other synergies in
manufacturing?

Interviewer: Manufacturing costs have remained constant.

Candidate: Well, this could be one of the potential problems. Manufacturing costs should decrease as a
percent of sales from synergies. Post merger synergies should be realized and manufacturing costs
should somewhat decline. Other post merger synergies such as overhead and management costs could
also be realized. Economies of scale and capacity utilization should improve from mergers and therefore
costs should decrease as a percent of sales. Other issues could be culture fit between the two firms. We’ll
start with the manufacturing costs remaining constant. Let’s take a look at how many plants are in this
division and what the capacity utilizations are for these plants.

Interviewer: There is one manufacturing facility with high capacity utilization. Do you think that there are
any opportunities to reduce costs within manufacturing?

Candidate: There is still a possibility of moving the production of the processed meats to each raw meat
plant and increasing the vertical integration at each facility. Perhaps we can examine the investment
required at each plant and the exiting costs for the existing plant to the benefits of transportation costs
and inventory costs.

Interviewer: Suppose this is true and after implementing these changes, we discover that there is a $10
million improvement to the EBITA (earnings before interest, taxes and amortization) for a $40 million
investment. What would you recommend now? Would you implement these changes?

Candidate: I would now compare the improvement in earnings to the loss from operations. What is the
loss in operations annually?

Interviewer: The operations loss is $20 million per year.

Candidate: So, this means that the division is still losing $10 million annually plus a $20 million dollar
investment. Now, let’s look at selling the business. Who are our potential buyers and how much are they
willing to pay? (don’t forget that selling the business is always an option that you should be prepared to
bring up if you seem unable to find a path to profitability)

Interviewer: There are no potential buyers. You cannot sell this business.

Candidate: Then, we must look at exit costs. Perhaps we should not be in this business. How much would
it cost to close down the plant? We would want to know the total cost of severance and the value of the
assets we currently have.

Interviewer: The cost of exiting is $100M.

Candidate: If we do an NPV (net present value) calculation on the cash flow improvements, we would see
that we would lose almost the same amount by staying in business. You can now make an argument for
exiting the business based on core competencies and focusing on core businesses.

Interviewer: OK, I think we have covered all. Can you summarize your findings for me?

PPG Industries to Buy Dutch Coatings Producer SigmaKalon

Case Type: mergers and acquisitions (M&A).
Consulting Firm: Simon Kucher & Partners (SKP) final round job interview.
Industry Coverage: Chemical Industry.
Case Interview Questions #00479: Your client PPG Industries (NYSE: PPG) is a major chemical
producer and a global supplier of paints, coatings, optical products, specialty materials, glass and fiber
glass. With headquarters in Pittsburgh, Pennsylvania, United States. PPG operates in more than 60

countries around the globe.  Sales in 2010 were USD $13.4 billion.
PPG Industries has retained your consulting firm’s services to evaluate the feasibility of acquiring Dutch
paints and coatings producer SigmaKalon Group. Based in Uithoorn, Netherlands, SigmaKalon is a major
player in the industry. As a consultant assigned to this case, your task is to analyze the future prospects
of SigmaKalon Group’s major product line, a specialty chemical used in the production of paints and
coatings. Should PPG acquire SigmaKalon or not?
Possible Answers:
Part #1: Hypothesis Testing
The interviewer should ask the candidate for his/her initial thoughts on client’s possible motivations for
acquiring SigmaKalon. This is an open-ended question; possible answers follow. Discuss briefly some of
the concepts mentioned below and proceed to next part. What could be the purpose of this acquisition?
Part #2: Strategic Issues
The interviewer should question the candidate about the overall strategic issues that need to be
addressed in evaluating an M&A proposal. The idea here is to get a sense of the candidate’s business
judgment and whether or not he/she is able to apply correct frameworks to diagnose the issue at hand.

A strong candidate will recognize that this case deals with internal factors (synergies and economies of
scale) as well as some external factors (opportunity costs and industry attractiveness). The candidate
should include some of the following elements in his/her framework:

 Market attractiveness & Industry potential

 Operational analysis: synergies, economies of scale, network externalities
 Organizational and cultural compatibility
 Capability to complete acquisition: financial, legal, and perceptual barriers
1. Market Analysis
 End-users for coating products come primarily from the automotive industry.
 Market size has been slowly declining over the last five years.
 Within the last couple of years, prices have declined rapidly.
2. Competition & Industry Analysis
 There are 10 major producers; the largest one Dow Chemical has a 35% market share; number
two Dupont has 25%, and SigmaKalon is the third with 20%; the remaining share is divided amongst
others.
 The two largest competitors earn a small return; SigmaKalon is slightly above break-even; the
rest are operating at break-even or at a loss.
 Relative capacity utilization in the industry is 60% to 70% and has been so for the last 3 years.
SigmaKalon is also currently working at 75% of capacity.
 The two largest competitors (Dow Chemical, Dupont) are highly diversified chemical companies,
with this particular product line representing no more than 20% of their total revenues.
 This is a highly regulated industry with expensive pollution control equipment.
 There are high barriers to entry because of the low profits and high investments required.
3. Product Value Proposition & Brand Portfolio
 The price has been driven by self-destructive cuts from the leaders to gain temporary share
points.
 We do not foresee the development of any significant by-products.
 Other possible uses: None.
 Complementary Assets: 50% of SigmaKalon’s sales are to the automobile industry.
4. Finance and Operations
 Cost is based on size/efficiency/age of plant, etc. Within the industry, SigmaKalon is in an above
average position.
 There are several operational improvements that could be implemented, and management has
not been aggressive in its pursuit of quality and cost controls.
 Great economies of scale exist in marketing and transportation. (Not quantifiable)
 Operational synergies could represent an additional $30 million in profits.
Part #3: Valuation
The interviewer should discuss the above-mentioned qualitative aspects in some detail, and provide the
candidate with Table 1 when the conversation shifts to the topic of valuation. Ask the candidate to
compute the present value of acquisition. You may allow the candidate to use 10% rate of return and not
9% if requested. However, ask him/her the effect on NPV of a higher vs. lower discount rate, to gauge
candidate’s understanding of the concept.

Table 1.

Purchase Price $950 million

Annual operating income before tax $90 million

Cash $30 million

No. of employees 2000

Return on capital 12%

Market risk premium 7%

Growth rate 3%

Tax rate 40%

Possbile Answer:
NPV Analysis: Based on the information from Table 1, the net present value of the target company is =
$90M / 10% = $900 million (assume perpetuity), which is less than the purchase price tag of $950 million.

Industry Attractiveness: not particularly attractive, unless the larger competitor can use economies of
scale and dominant position for economic gain.

Note: The above answer meets the interviewer’s minimal expectation; however a superior answer would
also involve the following.
A more comprehensive NPV analysis would include the new cash flow from synergies, as well as the
previously calculated NPV. Therefore, the $900 million + [ Synergies 30M/(12% - 3%) = 333M ] =
$1,233M, value of target is greater than the $950M price tag.

In addition to the cash flows expected from synergies, the potential economies of scale and tax
advantages from funding the acquisition with debt could be seen as other sources of revenue. These
considerations further improve the deal.

Competitive and regulatory responses to block the merger are reasonable to assume due to concerns
over industry concentration.
Benchmarking the value of the SigmaKalon acquisition to other similar M&A in the industry. Consider
what multiple of operating profits other acquisitions been valued at?

Part #4: Conclusion

Ask the candidate to summarize the case with a recommendation. His/her wrap-up should clearly include
a “go / no go” decision for the client, followed by quantitative (valuation) and qualitative (industry and
compatibility analysis) findings.

Comments:
This is a classic M&A case and includes a piece on valuation. The frameworks used in this case include
Porter’s Five Forces analysis, competitive analysis and issues characteristic of M&A activity such as
human capital and legal/financial considerations. Most of the case is qualitative in nature with the
exception of the valuation part. Accordingly depth and flow of discussion is at the discretion of the
interviewer.

General Mills to Shift Focus Towards Health Food Products

Case Type: improve profitability; merger and acquisition (M&A).
Consulting Firm: ZS Associates 2nd round job interview.
Industry Coverage: food and beverage.
Case Interview Question #00448: Our client General Mills, Inc. (NYSE: GIS) is an American Fortune
500 corporation headquartered in the Minneapolis suburb of Golden Valley, Minnesota. The company is
primarily concerned with food products and consumer packaged goods (CPG). It sells yogurt, frozen

pizza,  frozen and canned vegetables, cookies, crackers, donuts, and other
snacks. The company is well established and has been around for over 100 years. Annual revenues are
$15B and the company previously had a profit margin of 20%. Recently, however, that profit margin has
fallen by 30% over the last two years.
The CEO of General Mills feels that this is the result of changing market trends. Older consumers that
were previously General Mills customers are not buying the same food they used to eat for their children.
There are also some spikes in materials costs. In particular, the costs of flour, milk and sugar have risen
recently. Previously sugar was purchased from outside the United States, but new tariffs have increased
the import price.
What should the company do to reverse the trend of declining profit margin?

Additional Information: (to be given to you when asked)

 Our client General Mills feels that the new trend toward health foods is the major cause and
expected to be a long term shift.
 Our client General Mills’ food products are in nation-wide markets.
 Revenues have fallen across all product lines, it does not appear to be a particular product’s
problem.
 Our client previously launched a health food product that failed miserably.
 Competitors are facing the same revenue and cost problems as far as we know.
Possible Answer:

The key to cracking this profitability case is analyzing the market and figuring out how the client can best
regain control. Though the market is shifting towards health foods, which the client previously failed to
enter, you need to think about why the client failed in this arena and how they could best go about
successfully penetrating the market, i.e. via new company acquisition.
We have some data showing that revenue has fallen and some data that costs have increased. So, work
through each side of the profitability equation: Profits = Revenue – Costs.

1. Cost
 consider purchasing materials in bulk or establishing long term contracts with suppliers to
decrease the cost of flour, milk and sugar inputs.
 consider buying materials internationally, price increase mentioned in the case was only
domestic.
2. Revenue
 look at changing branding (perhaps people don’t want to buy healthy foods from a junk food
company, could this be why previous health product failed?)
 consider changing marketing
 create a new healthier look to old snacks with new packaging
 market to children instead of parents, then they’ll encourage parents to buy
 consider marketing more internationally
 consider developing/producing a new health food product line
 produce same products in low-sugar, low-carbohydrate, low-calorie, low-fat versions
 it seems that junk foods and healthy foods are somewhat similar, so not a gigantic leap
into new market
 client should be able to leverage current production facilities, distribution networks, and
industry expertise
 consider acquiring other health food companies.
Question #2: There are three potential companies for acquisition.
 Company A: $300M to purchase, profit margin of 10%, growth of 5%, nationwide distribution
network, 100% organic foods company.
 Company B: $200M to purchase, profit margin of 20%, growth of 10%, not nationwide, but sells in
about 80% of nation, has a diet plan, similar to south beach, also co-brands with a gym.
 Company C: $100M to purchase, profit margin of 25%, growth of 20%, local brand, mostly on
west coast, does have a large innovation house.
How would you rank the preferred acquisition of these companies? Why? What are key advantages and
disadvantages of each company?

Dupont Enters Rechargeable Battery Market via Acquisition

Case Type: merger and acquisition (M&A).
Consulting Firm: Cognizant Business Consulting (CBC) final round job interview.
Industry Coverage: chemical industry.
Case Interview Question #00423: For this case, you are advising the CEO of DuPont (NYSE: DD), a
global chemical company based in Wilmington, Delaware, USA. The company’s manufacturing,
processing, marketing, research and development (R&D) facilities, as well as regional purchasing offices

and distribution centers are located all over the world.

As one of the largest manufacturers of basic chemicals, Dupont has been facing stagnant growth and
profits for years. Recently, they are considering the acquisition of a rechargeable battery manufacturer to
stimulate growth and profits. Is this a good idea? What are the issues they should consider in making the
final acquisition decision?

Additional Information: (to be given to you if asked)

The client Dupont is the largest national manufacturer in their product line.

Rechargeable batteries industry: (Do not give out this information unless specifically asked – this is the
key to solving the case)

 Rechargeable batteries is a high-growth industry.

 Growth is being fueled by advances in information and telecommunications technology,
especially the explosive growth in the use of laptop PCs, cellular phones and other mobile devices
that need to be powered by rechargeable batteries.
 This industry is dominated by Japanese low-cost manufacturers with high volumes.
 Main customer base will be OEMs (original equipment manufacturer) of laptop PCs, tablets,
cellular phones and similar mobile equipment (ipod, MP3 players, portable video game players, GPS,
etc).
 Key success factors in this industry are:
 Ability to bring product to market quickly.
 Constant innovation.
 Ability to draw a price premium for innovation before imitators and low-cost producers
enter the market.
Possible Answer:
For a merger and acquisition (M&A) case, usually two key issues need to be considered: Internal and
External.

1. Internal Issues

a. Fit with long-term objectives: Long-term objective of client is entry into high-growth markets.
b. Fit with core competencies:

 Required core competencies:

 Product innovation.
 Ability to bring to market quickly.
 Ability to meet strict customer requirements relating to product quality, delivery and
reliability.
 Current core competencies:
 National distribution channels.
 Low cost chemicals manufacturing.
 Commodity products, low service level.
 Competencies that need to be acquired:
 R&D ability.
 Bringing product to market quickly.
 Servicing a small number of key customers.
2. External Issues
a. Competitors:

 Who are current competitors? – Low cost Japanese manufacturers

 What is competitor’s most likely response to client’s entry into the market? – Further price cutting
or innovation? Talk about game theory.
b. Customers and market growth:

 Who are the customers?

 OEMs (main market)
 Replacement market (insignificant share)
 What do customers want?
 Availability (reliable delivery schedules synchronized with their production schedules)
 Reliable product (Brand name manufacturers of electronic equipment)
 Constant innovation in products (miniaturization, longer battery life)
 What does market growth look like in the long term?
 Current and future profit margins? – Need to get more information
 Attractive growth prospects due to growth in laptop PCs and telecommunications industry
Power Company Entergy to Merge with Gulf States Utilities
Case Type: mergers & acquisitions.
Consulting Firm: Booz & Company first round job interview.
Industry Coverage: energy; utilities.
Case Interview Question #00409: Booz & Co is advising Entergy Corporation (NYSE: ETR), a large
S&P 500 American power and utility company. Entergy is an integrated energy company engaged
primarily in electric power production and retail distribution operations. It is headquartered in the Central

Business District of  New Orleans, Louisiana. Its U.S. Utility segment provides
retail electricity services to approximately 2.7 million customers in Arkansas, Louisiana, Mississippi, and
Texas.
Recently, Entergy is looking to merge with a rival: Beaumont, Texas-based Gulf States Utilities. The
merger would cost $300M in transaction fees and integration costs to execute. Should they merge or not?
Our client Entergy would like to know where the possible synergies would be.

Note to Interviewer:
The objective of this “Merger & Acquisition” case is

 To see if the candidate can structure the problem

 To see if the candidate can identify possible synergies
 To see if the candidate can complete math calculations
Suggested Framework:
 Current Product Mix
 Cost Structure
 Possible Synergies
Question #1: What are some possible synergies in the merger?
Possible Answer:
 Decrease in management costs
 Eliminate duplicate distribution lines
 Increased plant utilization
 Increased purchasing power of inputs
 Ability to long in longer term contracts due to larger size
 Decreased competition
 Consolidated pricing
 Increased lobbying power
Question #2: What would the possible savings be?
Additional Information: (to be provided to candidate upon request)
Table 1. Tons of coal purchased before the merger

Firm Coal purchased per year (ton) Price ($/ton)

Entergy 100M $25

Gulf States Utilities 50M $30

Under the merger, the combined company would be able to purchase coal for $24/ton.

Possible Solution:
Coal purchased per year
Firm (ton) Price ($/ton) Cost

Entergy 100M $25 $2,500M

Gulf States Utilities 50M $30 $1,500M

Total $4,000M

Combined 150M $24 $3,600M

Savings $400M

Question #3: Should the client go ahead with the merger?

Possible Answer:
Yes, the merger will bring in cost savings of $400M per year, greater than the merger transaction fee and
integration costs of $300M.

Bonus Question: What would happen to your recommendation if the cost of coal was variable and went
up $2/ton? List concerns and summarize.
Blackstone Evaluates Asiana Club Frequent Flyer Program
Case Type: investment, private equity; valuation; merger & acquisition.
Consulting Firm: Cambridge Associates first round job interview.
Industry Coverage: airlines; financial services.
Case Interview Question #00394: Your consulting team has been retained by New York-based global
private equity firm The Blackstone Group L.P. (NYSE: BX) to advise them on the purchase of Asiana
Airlines. Asiana Airlines is one of the major airlines in South Korea.  With its
headquarters in Asiana Town in Seoul, the airline has its domestic hub at Gimpo International Airport and
its international hub at Incheon International Airport 43 miles from central Seoul.
Right now there is some controversy on the frequent flyer program (Asiana Club) of the airline being
acquired. Asiana Airlines claims that their frequent flyer program is an asset, while people in Blackstone
Group making the purchase believe the program will be a liability and want to get rid of it. How would you
assess the asset or liability value of the frequent flyer program of Asiana Airlines?
Additional Information:
Nowadays every major airlines have introduced a frequent flyer program, so the program itself is no
longer a competitive advantage.

The majority of miles given by Asiana Airlines have been accumulated by business class customers flying
on popular routes between South Korea and the USA.

Possible Approach:

This is an investment and valuation case that needs to be split into the asset side and the liability side.
Asset value of an airline frequent flyer program mainly lies in locking in business class customers who
have accumulated a high switching cost because they have built up so many miles. As a result, they have
access to additional perks such as free upgrades, access to lounges, etc. that they do not want to give
up. The candidate should make a decision on how much value business customers attach to these
privileges.
Liability of the program depends on cost of redemption of miles and the lost opportunity cost.
Redemption cost depends on incremental cost of fuel, handling, and checking, as well as the cost of
running the program and the opportunity cost of the seats.

Opportunity cost can be minimized by managing the lock-out dates and the number of seats available for
frequent flyers.

Costs of running the program (which the candidate should identify as the most costly part of program)
include IT infrastructure, marketing costs, and the cost of operating a telephone line. These costs can be
lowered by using the service for other tasks of the acquiring firm Blackstone Group (credit card,
insurance, financial services, etc).

An exceptional candidate will use a chart to summarize the above points.

Los Angeles Zoo to Buy a Rare 900-pound Gorilla from Africa
Case Type: math problem; merger & acquisition.
Consulting Firm: Oliver Wyman second round job interview.
Industry Coverage: leisure & recreation.
Case Interview Question #00390: The Los Angeles Zoo, formally known as the Los Angeles Zoo and
Botanical Gardens, is a 113-acre zoo located in Griffith Park of Los Angeles, California, United States.

The City of Los Angeles owns the entire zoo, its land and facilities,  and the
animals. The zoo is home to 1,100 animals (more than 250 species) from around the world.
Recently, the manager of Los Angeles Zoo is considering the acquisition of a very rare 900-pound gorilla
from central Africa. You have been hired to help the zoo’s management to decide whether this is a
worthwhile venture. How would you go about analyzing the proposed acquisition?

Possible Answer:
The candidate should take a few moments to brainstorm the impact of the acquisition. He/she should
consider the aspects of the actual acquisition, as well as the support of the gorilla. He/she should also
think about the possible impact on revenueof a new attraction. If he/she wishes to progress the financial
impact in detail, ask him/her to consider other factors first.
Key Issues to consider for a gorilla acquisition:

 Space / Capacity / Facilities

 Food / Diet
 Trainers / Expertise
 Environment / Temperature / Climate
 Mating arrangements / additions of more gorillas
Other than the issues identified above, the most important thing that the management of Los Angeles Zoo
must consider is the financial impact of the acquisition. The candidate should calculate whether the
acquisition is financially viable.

Impact on Cost:

 Space / Facilities
 Training
 Food / Diet
 Maintenance
Impact on Revenue:
 Increase in zoo attendance (volume of visitors)
 Extra admission fee
 Programs / Events / Shows
Additional Information: (to be provided to candidate if requested)
Currently, 600,000 people visit the Los Angeles Zoo each year. Half of the visitors are adults, half are
children. Admission is currently $15 for adults, $10 for children.

Other zoos have acquired giant gorillas, and have seen increases in overall attendance at the zoo. San
Diego Zoo, for example, saw a 12% increase in the first year after acquiring a 900-pound gorilla, an
increase which it was able to maintain into the future.

Costs of acquiring the gorilla are as follows:

 Consultants fees already incurred to identify available gorillas in Africa and to advise on
transportation requirements of $200,000.
 Acquisition fee of $590,000 payable immediately.
 Costs of building new enclosure is $1,175,000 payable immediately.
 Transportation costs of $335,000 payable immediately.
 Annual gorilla expenditure and maintenance on the enclosure is $300,000 paid at the end of each
year.
Applicable discount rate = 20%.

Assume the gain experienced in the first year will be maintained in perpetuity. For simplicity, ignore any
capital maintenance or growth.

Calculations:
The interviewee should calculate the NPV (net present value) of the acquisition project.

Costs: The immediate cost of acquiring and transporting the gorilla to the zoo is $200,000 + $590,000 +
$1,175,000 + $335,000 = $2.3 million.
Benefits: Assuming the Los Angeles Zoo will have a similar increased attendance as San Diego Zoo, it is
likely to see an increase in attendance of 12% on 600,000 people = 72,000, or 36,000 adults and 36,000
children at the 50/50 ratio. This translates into an increase in revenue of (36,000 * $15) + (36,000 * $10) =
$900,000 per year. Remember, the maintenance cost each year is $300,000, so the net impact on
earnings each year is a gain of $600,000.
NPV calculation:
 Year 0: – $2.3 million
 Year 1 onwards in perpetuity: Annual gain = $600,000, Perpetuity = $600,000 / 20% = $3 million,
NPV = $3 million / (1 + 20%) = $2.5 million
Conclusion: From the above calculations, the NPV of buying the 900-pound gorilla is just positive by
$200,000. This provides evidence in favor of acquiring the gorilla. The interviewee should summarize the
case by committing to a position and backing it up with evidence. Given a positive NPV, there exist strong
grounds to acquire the gorilla.
BNSF Railway to Address Post-merger Integration Issues
Case Type: improve profitability; merger and acquisition.
Consulting Firm: ZS Associates 2nd round job interview.
Industry Coverage: railroads & trains; freight, delivery, shipping services.
Case Interview Question #00380: The client is the CEO of BNSF Railway, one of the largest freight
railroad companies in North America. Headquartered in Fort Worth, Texas, United States, the company is
mainly engaged in the business of rail freight hauling. A freight train is a group of freight cars hauled

by  one or more locomotives on a railway, ultimately transporting cargo between

two points as part of the logistics chain. Trains may haul bulk material, intermodal containers, general
freight or specialized freight in purpose-designed cars.
The client company’s business fundamentals continue to be solid, but recently it has struggled in
generating the strong shareholder return that is characteristic of the company and its peer group. Very
concerned, the CEO of BNSF Railway has retained your consulting firm to look into the issue. What has
caused the decline in client’s shareholder return and how should the CEO address the problem?
Additional Information: (to be revealed to the candidate during the course of the case interview)
The US freight railway industry is very mature.

Companies in the railway industry tend to generate a lot of cash – once significant fixed costs are
incurred, business has relatively low variable costs (fuel is the major one, but fuel costs can’t be major
cause of the problem because it affects the entire industry).

There are four major companies in the US railway industry – two in the West (Union Pacific Railroad,
BNSF Railway) and two in the East (CSX Railroad, Norfolk Southern Railway). All competitors have
roughly the same national market share. The small number of total competitors is due to significant recent
consolidation in the industry.

Service is non-contiguous between the East and West and transnational service is only a very small
segment of the overall market.

Our client competes only in the West. In this market segment, 75% of revenue (mainly coal, automobiles,
and general merchandise) is served by our client and the main competitor Union Pacific Railroad (almost
equal market share). Of the remaining 25% (mainly chemical and agriculture), 10% is served by our client
and 15% is served by the competitor Union Pacific Railroad.
Revenue growth generally comes from acquisition – typically market shares remain relatively constant
(nobody steals too much market share).

Market segments served by the client are the following:

 Coal (35%)
 Merchandise (25%)
 Agriculture (15%)
 Chemical (10%)
 Automobile (10%)
 Intermodal Trailer Rigs (5%)
Client company is one of more profitable in the industry. They have been able to generate cost savings of
approximately 10% per year for the last five years.

Our client company was formed recently (15 months ago) through the merger of two railway companies of
equal size – Chicago, Illinois-based Atchison, Topeka and Santa Fe Railway (often called the “Santa Fe”)
was merged into Houston, Texas-based Burlington Northern Railroad.

So far, our client has completed 75% of the integration of the merged companies, areas of which include
stock yards, service centers, train sets, and track disposition.

Possible Approach:
The key to this case is not getting caught up in all of the industry information (competitors, market share,
market segments,etc) that comes up throughout the case. Because the US railway is such a mature
industry, the candidate should realize that profit improvement opportunities are only going to come from
acquisitions (to generate top-line growth) or cost cutting.
Once it is determined that the client company made a significant merger and acquisition recently, the
candidate should walk through post-merger integration issues. The candidate should eventually recognize
that the recent merger has left considerable assets under-utilized.

Possible Solution:
Significant assets could be sold off, and in particular, much of the redundant railway track accumulated in
the merger could be sold to mom and pop short distance railways (e.g. scenic tours, specialized hauling).

Ford Considers Buying A Leading Car Rental Company

Case Type: mergers and acquisitions.
Consulting Firm: Accenture second round job interview.
Industry Coverage: automotive, motor vehicles.
Case Interview Question #00369: Your client Ford Motor Company (NYSE: F) is a multinational
automaker based in Dearborn, a suburb of Detroit, Michigan, United State. Ford is the second largest of
the Big-3 automakers in the U.S. and the fifth largest in the world based on annual vehicle sales in 2010.
Ford is the eighth-ranked overall American-based company in the 2010 Fortune
500 list, based on global revenues of $118.3 billion in 2009.
Recently, Ford is interested in acquiring a leading rental car agency in the US (e.g. Hertz, Budget, Avis,
Thrifty, Dollar, Advantage, Alamo, Enterprise, National, Payless Car Rental, etc). What key questions
would you address to help the management team of Ford make a decision. Is this proposed acquisition a
good idea or not? If yes, how would you help Ford choose an acquisition target?
Possible Solutions:
The candidate should disaggregate this “merger and acquisition” case into the following steps.

 What is the objective behind the client’s proposed acquisition?

 How is the target company performing as a stand alone company? How about its company
growth rate, profits, industry growth, etc?
 What are the synergies between our client and the target?
 Operational synergies
 Financial synergies
 Can the target be disciplined and improved?
 What are the risks associated with this acquisition?
 Is there a cultural fit between the client company and the target?
 Is there a competitive bid? Will the client have more synergies than if the competitor acquires the
target?
 The financial details of the acquisition – How much is the client going to pay and do they have the
source for funding the acquisition?
 Do the managers executing this deal from the client side have experience in deal making and
post-merger integration? Else do they need training or special inputs?
Instructions to the interviewer:
The interviewer should guide the discussion on the operating synergies. What are the possible operating
synergies and negatives of the acquisition? A good candidate should mention at least 2 synergies and 2
potential risks. Some of the possible synergies and potential risks are listed below.

1. Revenue synergies:
 The rental car company will be an assured customer and this will help the client Ford boost their
sales and improve market share.
 If the rental car company has strong presence in international markets, this will help the client
Ford to expand and establish a strong foothold in the international market.
 The more frequently the customers rent client’s car, the more likely they will buy cars sold by the
client in the future (for personal use). This can induce customer demand for our client’s cars.
 Gives the client an opportunity to rent out new model cars and induce demand.
 Gives the client an opportunity to stay closely in touch with the customer and understand their
requirements and make quick changes if needed. This will also help Ford in generating ideas for new
product development.
2. Cost synergies:
 Reduction of corporate, administrative costs and overhead.
 Both companies have a claims processing division and can be merged to reduce cost.
3. Potential risks:
 How will the other rental car companies react to this?
 What if other rental car companies refuse to buy our cars?
 How will client’s competitors react to the acquisition?
 What if competitors (GM, Chrysler) stop supplying their cars to our target?
BASF Evaluates Cognis as Possible Acquisition Target
Case Type: mergers & acquisitions; industry analysis.
Consulting Firm: McKinsey & Company final round job interview.
Industry Coverage: Chemical Industry.
Case Interview Questions #00366: The client BASF SE (FWB: BAS) is a large global chemical company
headquartered in Ludwigshafen, Germany. BASF has retained McKinsey to evaluate Monheim, Germany-
based Cognis, another large player in the chemicals industry, as a possible merger/acquisition candidate.

Both BASF and Cognis are bulk commodity chemical producers. Our consulting
team’s main job is to analyze the future prospects of the target company’s main product line: a bulk
chemical that is used in the production of plastics.
Our consulting team has to analyze Cognis, the target company’s future prospects in its major product
line. As the team leader of this case assignment, what information do you need to know and how would
you structure the analysis to determine if the proposed merger/acquisition is a good idea or not?
Note:
At this stage in the project, our consulting team is not in a position to make a final recommendation, but is
more interested in gathering the appropriate data. This is different from most consulting case interviews in
which the purpose is to come out with a recommendation for the client.

Additional Information: (to be revealed during the course of the case interview)

 Production of this chemical has been declining slowly for several years.
 Prices have declined rapidly.
 There are 8 major producers of this chemical with market share divided the following way: the
largest producer has a 30% share, the second largest has a 20% share, and our target company has
a 15% share. The rest is divided among the remaining 5 competitors.
 Profitability in the industry is relatively low. The two largest competitors earn small returns, our
target company is breaking even, and the remaining competitors are operating at a small loss.
 The largest competitor has just announced plans to substantially increase capacity.
Possible Solutions:
This is a merger/acquisition and industry analysis case in which Porter’s Five Forces framework might be
useful, but it isreally an exercise in how to uncover the underlying drivers of the facts given in the case. In
general, the interviewer was more interested to see if I could ask the right questions to collect data.
There are countless paths that the analysis could flow down. Presented here are some of the most
obvious to consider. A satisfactory response would include addressing the following issues:

1. Industry & Market Analysis

Candidate: What buyers or target markets make final use of this chemical product? What is the nature of
the growth and profitability of these end markets?

Interviewer: The chemical was used primarily in the automotive related industries.

Candidate: Is this industry or product regulated in any way that affects cost, pricing, or profitability?

Interviewer: Environmental and pollution regulation apply in the normal way to the chemical production
process, but nothing out of the ordinary.

Candidate: How much production capacity exists in the industry compared to the demand today? And
compared to the estimated demand in the future?

Interviewer: Much more capacity than necessary.

Candidate: What is the current capacity utilization in the industry? How about our target firm Cognis?

Interviewer: Both the industry and our target firm are operating at approximately 70% capacity.

2. Company/Product
Candidate: What is the relative cost position of our target company Cognis compared to the rest of the
competitors?

Interviewer: Our target company has a reasonably good position compared to the rest of the industry in
terms of size, age and efficiency of equipment, and financing.

Candidate: How diversified is this target company and does this product represent a significant source of
revenue?
Interviewer: It is a significant source of revenue, but the most competitive producers are adequately
diversified.

Candidate: Are there additional niche or value-added uses for this chemical or its by-products that are as-
yet untapped?

Interviewer: Nothing really significant.

3. Competitions
Candidate: How rational or volatile is pricing between competing firms?

Interviewer: The industry players often engage in price cuts to temporarily increase market share, but
usually suffer falling profitability as a result.

Candidate: Do we know the reason for the largest competitor announcing capacity increases? Are they
trying to introduce a credible threat to deter future entry or expedite exit from the industry?

Interviewer: We are not sure but it could be possible.

Candidate: Are entry or exit costs prohibitive?

Interviewer: Market entry is expensive due to the unique fixed costs of producing this chemical. Exit is
relatively inexpensive.

Candidate: Has the number of competitors or their market share changed significantly in recent years?

Interviewer: Competitors have been in this industry for a long time and many plants are fully depreciated,
making exit inexpensive. Market share has not changed significantly in recent years.

4. Synergies in Merger/Acquisition
Candidate: Are there operational improvements that the target company Cognis could make to enable it
to be more efficient or other management expertise that our client’s company could bring into the
merger/acquisition?

Interviewer: Yes, on both accounts.

Candidate: Are there scale economies in production or distribution?

Interviewer: Yes, economies of scale exist in marketing and transport, but are much smaller in production.

Candidate: Are there other synergies between our client’s company and the target company such as
product mix, cross-selling opportunities, raw material purchase, etc?
Interviewer: Not significant at this point.

Enterprise Software Autonomy Changes Its Pricing Strategy

Case Type: pricing & valuation; merger & acquisition; organizational behavior.
Consulting Firm: Cognizant Business Consulting (CBC) 2nd round job interview.
Industry Coverage: software, information technology (IT).
Case Interview Question #00342: The client Autonomy Corporation PLC (LSE: AU) is an enterprise
software company with joint headquarters in Cambridge, United Kingdom and San Francisco, United
States. The company develops a variety of enterprise search and knowledge management applications

using adaptive  pattern recognition techniques centered on Bayesian inference in

conjunction with traditional methods. Revenue is estimated to be USD $870.4 million in 2010.
Autonomy has a monopoly selling knowledge management applications and enterprise software. A major
client of Autonomy, International Business Machines (IBM, NYSE: IBM), has recently withdrawn their
business. The senior executives at Autonomy think it might be a political move, since Autonomy has just
announced that it agrees to be purchased by one of IBM’s major competitors Hewlett-Packard Company
(HP, NYSE: HPQ) for as much as $10 billion. What would you recommend Autonomy to do?
Possible Solution:
1. Some hypotheses:
 Relationship problem: the client Autonomy might be able to tell us about them.
 Change in activity after the acquisition, access to the same services with another company brand.
 Autonomy’s client IBM might be able to build its own system and pay less (need for an Net
Present Value analysis, and a study about the pricing strategy of Autonomy; maybe the markup is too
high as Autonomy is trying to benefit from its monopolistic situation).
 IBM might be unhappy with the service provided (easy to test, by interviews with IBM). In this
case, it is important to understand if the big clients are offered the same pricing and the same level of
services as the small ones.
2. Some critical information needed to be asked to the interviewer here:

 How did the client Autonomy achieve to have a monopoly? Is it a national monopoly or local
monopoly? (HP, the company that purchased our client may have access to other services).
 How much would it cost for IBM to build its own system (to be able to answer whether it is worth
having its own system. A way to show that you know how to deal with numbers!)?
 Did Autonomy do a good job with selling knowledge management applications and enterprise
software or were some customers unhappy about the service provided?
3. What I found out from my analysis:
 improving technology will move cost frontier inward.
 consolidation in the industry will create more large clients that might develop their own systems.
 Big client like IBM might sell their own system very soon and we would have competition any time
from now on.
Recommendations for Client:
 Our client Autonomy would be better off by changing its pricing strategy; its market power is
decreasing as consolidation in the industry is increasing.
 Try to be more aggressive with small clients with whom the client still has a pricing advantage.

Note: This is case is very similar to another case “The Rise and Fall of Quotron Systems“. You may want
to check out the possible answers to that case too.
Private Equity Firm Carlyle Group to Exit Banking Business
Case Type: private equity, investment; mergers & acquisitions.
Consulting Firm: Cognizant Business Consulting (CBC) first round job interview.
Industry Coverage: banking; financial services.
Case Interview Question #00341: Your client The Carlyle Group is a global private equity and asset
management firm based in Washington, D.C., United States. With assets in excess of $150 billion under

management diversified over 84 distinct funds, Carlyle was ranked as the  third
largest private equity firm in the world, after TPG Capital and Goldman Sachs Capital Partners as of
2011.
The Carlyle Group owns a large bank called Community One Bank which has 63 branches in North
Carolina. In wake of the recent financial crisis, Carlyle wants to get out of the banking business. With
$100 million in losses, the top management team hopes to find a new business to acquire, against which
they can offset the losses (losses carry forward). You have been retained to recommend an acquisition
candidate for the client. How would you go about it?
Possible Solution:
I tried to solve this investment/private equity case using a two-stepped approach.

Step 1: the client needs to find a well performing company in an attractive industry that will meet its
financial objectives.
The new company’s net income within the next 15 years should be sufficient to cover losses of the failing
banking business. Long-term attractiveness is important, because once the losses are written off, the
client must be able to sell this new business at a good price (if Carlyle Group desires so).
The industry is important so that the current bank capabilities can be leveraged (expertise in customer
research, geographical spread, etc). Since there are significant requirements to the new business’s
profitability, most start-ups are not viable alternatives in this case.

Step 2: understand if the banking business has sufficient capabilities (management and other) to run a
diversified company so that cost of complexity does not exceed the benefits of diversification.
Bank One Successfully Completes Acquisition of First USA
Case Type: mergers & acquisitions; organizational behavior.
Consulting Firm: Marakon Associates 2nd round job interview.
Industry Coverage: banking; financial services.
Case Interview Question #00313: The year is 1997. The Chairman and Chief Executive Officer of
Chicago, Illinois-based Bank One Corporation (NYSE: ONE) has just announced that Bank One has
completed the acquisition of First USA Inc. (NYSE: FUS), headquartered in Dallas, Texas. First USA

is  a financial services company specializing in the credit card business and is
currently the fourth largest among domestic Visa and MasterCard issuers with $23.2 billion in managed
receivables and 16.3 million cardholders.
With assets of $101.6 billion and common equity of $8.2 billion, Bank One provides the full range of
commercial banking and financial services, whereas First USA only provided credit card service. The
management of Bank One has decided that after the completion of the merger, First USA will run their
combined credit card department. The combination of First USA’s operations with Bank One’s 16.0 million
cardholders and $11.9 billion in managed card receivables will produce the nation’s third-largest card
operation with 32.3 million cardholders and card assets of $35.1 billion.
Suppose you are tasked on the integration team. What would be your major concerns?

Possible Answer:
I did not have a generic structure for this merger and acquisition case, rather I listed the key issues I
would be concerned with, and then dug into each one. I started with some clarifying questions. I
discovered that Bank One had definitely decided to use First USA to run their credit card department;
there would be no discussion about this.

1. Cultural and Organizational Issues: How alike are Bank One’s and First USA’s cultures and
organizations?
The first set of issues that I outlined was related to the organizations themselves. This is basically the
cultural lens that we all know and love from business operations class. I explored the different cultures
and found that there would be no major problems merging the two companies.
2. Cost and Efficiency Issues: Are there opportunities for costs savings with this acquisition?
The next set of issues was cost related. I wanted to maximize cost savings of merging the two credit card
departments. I explored what kind of cost savings could be attained: headcount reduction, shutting down
duplicate facilities, increased scale. There are some scales efficiencies in credit card service, but both
companies already had the critical mass to optimize this dimension. First USA did have some more
efficient processes that would ultimately drive down Bank One’s operating cost structure of servicing
credit cards.

3. Customers: How alike are the fee structures of the two companies?

The next set of issues I addressed were the compatibility of the two credit cards and the specifics and
rates that each company provided for its own customers. This is relevant in merging the two, because if
the services and low rates provided by the two are not the same (which clearly, they would not be), then
the least common denominator would be a factor here. The point is that if one set of customers is
expecting no annual fee and a 12% APR then they will not accept anything worse than this, they would
simply change cards. Other attributes such as customer service would also have to be managed to
please all of the customers. The revenue effects of integrating the two would have to be analyzed.

4. Recommendations for Client:

In the end, these three issues: organizational, cost savings, and merging fee structures and services of
the two credit card operations were the only ones that I had time to address. Given more time, I would
definitely have to come up with a final recommendation.

How to Address IT Integration Strategy After Merger?

Case Type: mergers & acquisitions.
Consulting Firm: KPMG first round job interview.
Industry Coverage: banking; financial services; information technology (IT).
Case Interview Question #00287: Two companies in the financial service industry have recently
merged. You will be addressing the boards of these two companies regarding their upcoming IT
integration strategy and have the opportunity to interview the CEO’s of each company

involved.  What key information would you like to ask the CEO’s to prepare for
the board meeting and what will you likely discuss?
Additional Information:
None. Everything the candidate needs is already given in the set-up.
Possible Answers:

Good structure:
This needs to be the first and foremost question: Why are the two companies merging? This will dictate
how the case is answered. It also shows that the candidate realizes that the CEO’s are there to answer
corporate strategy questions, not technology.

If merging for economies of scale (e.g., Chase Manhattan and Chemical Bank), this implies that the
products and/or services must be similarly aligned. Therefore, the IT strategy should focus on integrating
systems whose objectives are the same.

If merging two complementary businesses (e.g., Morgan Stanley and Dean Witter), this implies that the
products and/or services are different. Therefore, the IT situations may likely differ, and the companies
may not want to integrate systems. However, they need to focus on how to work as one company, (e.g.,
cross-selling products, keeping track of an entire customer relationship).

Bad structure:
 Asking the CEO’s about specific platforms, technologies, or other IT details. This should be saved
for the CIO instead.
 Assuming that IT means online and focusing the entire case on the new company’s online
strategy.
Symantec Turns Down PC Maker’s Product Bundling Offer
Case Type: operations strategy; mergers and acquisitions.
Consulting Firm: Bain & Company first round job interview.
Industry Coverage: software, information technology (IT); computers.
Case Interview Question #00286: The client Symantec Corporation (NASDAQ: SYMC) is a
manufacturer of security software for computers. Headquartered in Mountain View, California, Symantec
is a Fortune 500 company and a member of the S&P 500 stock market index. Symantec offers shrink-

wrapped security software application products and has grown over the last few
years – mainly through multiple acquisitions. In the recent time, however, their stock price has declined
significantly. The sales have declined but their customer service department has shown impressive
growth in revenues over the last few months.
Recently, the CEO of Symantec has an offer from one of the largest personal computer OEMs (Original
Equipment Manufacturers) in the country to bundle his software product with their PC products and he’s
unable to decide what to do. You have been brought in to help him analyze the situation and charter the
path ahead. What would you recommend?
Possible Answer:

Candidate: Before I begin analyzing the case, I would like to clarify a few aspects of the case.
Interviewer: Sure, go ahead.

Candidate: You mentioned that the sales have declined recently but the customer service revenues have
shown significant growth. How significant has the decline in sales been? Also, does the company have
other sources of revenue besides product sales and customer service?

Interviewer: The sales have not declined much but they have been stagnant amidst a growing sector.
Customer service revenues have been increasing steadily over the last year or so, though. These are the
only two sources of revenue for the company.

Candidate: I see. I would also like to understand the type of offer that OEMs have made. What is the
revenue sharing model going to be?

Interviewer: The OEMs are desktop and laptop computer manufacturers who are offering a pre-
installation of trial versions of the company’s software on some of their product lines. In return, the
company will have to pay a fixed fee to the OEM for every new pre-installed computer sold and a 20%
commission for every user who moves from the trial version and purchases a full version of the software.

Candidate: I understand. So, it appears to me that the OEMs’ proposal can help us expand our sales
volume, though at lower margins. I am not sure whether this addresses the core issue that we are facing,
so I’d like to analyze the current profitability situation of the company. As you mention, the customer
service revenues have been rising. Do we have some data on the types of customer service incidents that
are commonly seen here?

Interviewer: I do not have specific numbers on customer service requests. However, I can tell you that a
major category of service requests are around software configuration issues. Sometimes the company’s
software applications provide multiple ways to accomplish the same goals. A significant number of callers
seek help on how to navigate different software.

Candidate: I see. One of the objectives of software design is to keep it simple and intuitive with in-built
easy-to-use help. It appears to me that the company’s products could improve on this dimension. I
suspect that some of this is the result of integrating technology from aggressive acquisitions that we have
made in recent years. I see broadly three ways to integrate acquisitions. First, the company can simply
add an acquired product as a new standalone offering in its product portfolio. Second, the new technology
from acquired companies could be utilized to add new features to the existing products of the company.
Third, existing products of the company could be replaced by superior acquired products. What approach
has this company taken in integration?
Interviewer: That’s a good way to think about it. In this case, the company has primarily followed the first
two approaches. There has been both a portfolio expansion as well as product enhancements.

Candidate: I suspect that the rising customer service revenues actually point to poor integration of the
acquisitions. There are two separate aspects to a successful integration. First, the product portfolio has to
be rationalized at a technical level. If the company offers multiple offers to accomplish the same goal, it
tends to be confusing for the customer. Similarly, products need to have a consistent look and feel so that
it is easy for customers to navigate and configure various features. Second, the sales and marketing team
needs to be well trained about the company’s evolving product portfolio. They should be able to help
customers make good choices for their needs.

Based on the type of customer service incidents, it appears that the company has not done very well on
either front. Customers are finding it difficult to configure and navigate the company’s software products.
Also, acquisitions should have led to an increase in sales. But stagnant sales point to deficient sales and
marketing function. I think without addressing these integration issues, it will be futile to pursue the OEMs
offer. It isn’t beneficial in medium and long-term to acquire disgruntled customers.

Interviewer: So what would your advice to the CEO be?

Candidate: I would recommend that the sales force be overhauled. There needs to be a strong mandatory
training program for the sales staff to make them fully conversant with the company’s products. I’d also
recommend that the redundancy in the product portfolio be reduced so as to alleviate customers’
confusion. A technical push should be launched to make the software look and feel consistent across
products. This should improve customer satisfaction, drive repeat business and improve sales. As for the
OEMs offer, I would advice to hold off until these core issues are addressed.

Interviewer: That seems fair. I think you have identified the main issues in the case and provided crisp
recommendations. We’ll close here. Thank you.

Wilson Sporting Goods to Buy Sports Illustrated Magazine

Case Type: mergers & acquisitions.
Consulting Firm: Capgemini first round job interview.
Industry Coverage: sports, leisure & recreation.
Case Interview Question #00284: The client Wilson Sporting Goods is a manufacturer of sports
equipment and supplies based in Chicago, Illinois. Currently with greater than $550 million / year in sales,
the client is a foreign subsidiary of the Finnish company Amer Sports. Wilson Sporting Goods has just
purchased a mid-sized, struggling sports magazine Sports Illustrated with
roughly $15 million / year in sales for the purpose of gaining access to its subscriber list for direct
marketing purposes. A recent state legislation, however, has forbidden the use of the subscriber list for
such a purpose.
The CEO of Wilson Sporting Goods has hired you as an external consultant and asked for your help
deciding what to do with this company. What avenues would you pursue, what information would you look
for, and what suggestions would you make?
Additional Information:
 The client Wilson Sporting Goods currently sells primarily to retail chains. They are trying to start
a direct marketing business, because margins are roughly twice what they are selling retail
businesses
 The magazine Sports Illustrated sells primarily through subscriptions, with a subscription list of
roughly 350,000 subscribers.
Possible Answers:

The job candidate can take this case in several directions:

 She/he can discuss attempts to try to turn the magazine company around through examining
strategic options or through focusing on the operations of the company.
 She/he can assess the possibilities for disposing of the company.
 She/he may discuss the synergies that may still exist, such as the strength of the free advertising
and the implications of the purchase upon the magazine’s business (revenue from other advertising
may suffer).
 She/he may also come up with creative suggestions for how to use the new company in a slightly
different way, for example, to use the facilities for production of internal or market communications, or
using the magazine to conduct market research.
AirTran Airways to Add More Service at Mitchell Airport
Case Type: increase sales/market share; mergers & acquisitions.
Consulting Firm: Seabury Group first round job interview.
Industry Coverage: airlines.
Case Interview Question #00277: You are a brand manager for AirTran Airways, a low-cost airline
recently acquired by Dallas, Texas-based Southwest Airlines. AirTran operates over 1,000 daily flights,
primarily in the eastern and midwestern United States. Its principal hubs are Hartsfield-Jackson Atlanta
International Airport, where it operates over 200 daily departures, and General
Mitchell International Airport in Milwaukee, Wisconsin.
In September 2010, Southwest Airlines announced it would acquire Orlando-based AirTran Airways for a
total of $1.4 billion. The acquisition would give Southwest a significant presence at many of AirTran’s
hubs such as Atlanta, GA (the largest U.S. city without Southwest service), Milwaukee, WI, and expanded
service in Baltimore, MD and Orlando, FL. Since the official announcement of acquisition, you notice that
your brand’s market share at Milwaukee’s Mitchell International Airport is declining. What are the things
you will want to explore to assess the situation? What would you do to reverse AirTran’s falling market
share at Mitchell International Airport?
Possible Answer:

1. Determine where the share is going – to an existing competitor or to new entrant? What are they doing
to drive consumers to their brand?
 Product: Is a new consumer need (business traveller v.s. leisure traveller) being filled?
 Promotion: Are they doing something to promote their product/service (price reduction, value-add,
etc.)? Is there new effective advertising? Have they increased their overall marketing spending to
support the product/service?
 Pricing: Has there been a price decrease on competitive brands?
 Place/Distribution: Did they get new, incremental distribution? Did they improve their distribution
channels (Direct sales, Global Distribution Systems, corporate sales, airline’s website, travel agents)?
2. Did you do anything to your marketing mix during this time period?

 Product: did you change your flight frequency, service quality, etc that may impact consumer
acceptance?
 Promotion: Have you made any significant changes to your mix of promotional vehicles? Have
you decreased your overall marketing spending to support the product/service?
 Pricing: Has there been a price Increase on your airline’s flight?
 Place/Distribution: Did you lose distribution?
3. Determine strategy to reverse share decline (changes to one or more of the 4P’s)

Watson Pharmaceuticals Considers Buying 5-Hour Energy

Case Type: mergers & acquisitions.
Consulting Firm: Deloitte Consulting first round job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences; food and beverage.
Case Interview Question #00273: Your client Watson Pharmaceuticals, Inc. (NYSE: WPI) is a large drug
manufacturing and distribution company based in Corona, California, USA. Sized at more than 5,800
employees, Watson’s Generics division markets over 150 pharmaceutical product

families,  including one of the largest lines of oral contraceptives in the industry,
and Watson’s Brand division markets over 20 pharmaceutical product families.
The senior management of Watson Pharmaceuticals plans to buy a smaller company called Living
Essentials, which has roughly 300 employees and specializes in producing athletic sports drinks and
other energy drinks, such as 5-hour Energy. Watson Pharmaceuticals uses an industry standard online
website frontend for its customers called ePharma and for its servers it uses an industry standard Oracle
database. Living Essentials uses all homegrown (custom-made) programs and web applications to
manage its inventory and servers. Would it be worthwhile for Watson Pharmaceuticals to acquire Living
Essentials?
Possible things to think about:

Products: What kinds of products does Watson Pharmaceuticals specialize in? Would it be more
profitable to develop and market their own sports drinks or to buy the patents/formulas from Living
Essentials or to buy the entire Living Essentials company itself? Costs for each option?
What section of the market does Living Essentials cover? What kind of globalization does Living
Essentials achieve and what markets are there to gain with acquiring Living Essentials (i.e. let’s say
Living Essentials exports most of its products to Canada and Asia to be sold while Watson
Pharmaceuticals holds a large market sector of pharmaceutical drugs in the US).

Place: Where is Living Essentials situated, where are their locations? Would Living Essentials have to
move its people to Watson Pharmaceuticals locations or could they stay where they are? What would the
cost be associated to relocating all of their employees? Would Living Essentials be willing to uproot itself
if it were a core job supplier in the local townships?
Promotion (Technology): Are there any other industry standard systems that are easy, simple, and
cheap to implement on both Living Essentials and Watson Pharmaceuticals? Is Living Essentials’s
homegrown system better than Watson Pharmaceuticals? Should Watson Pharmaceuticals try to
implement the homegrown system?
Would it be more efficient/cheaper/better to impose the industry standards on the entire Living Essentials
company or would it be better to keep the two companies’ systems separate or would it be better to keep
them separate but build and develop a program that would bridge the two systems (i.e save Living
Essentials’s information in Watson Pharmaceuticals systems as well as its own)? What would the costs
be associated to each of these three options?
Bank of England to Buy National Bank of Belgium
Case Type: mergers & acquisitions; math problem.
Consulting Firm: Capital One first round job interview.
Industry Coverage: banking.
Case Interview Question #00237: Your client is the Bank of England. As the name suggests, it is a mid-
sized London, UK based bank and deals primarily in commercial retail banking services like mortgages,
savings, loans, and credit cards. The bank’s revenues are rising, but their profits are

declining.  The client has asked your consulting firm to help them identify why
their profits are declining and to suggest possible strategies to stem the decline. How would you approach
the case?
Possible Answer:
Candidate: So the goal of this case is to restore profitability. Profits have two components – Revenues
and Costs. First, I would like to explore the following areas:
 Revenues – what is driving them?
 A new (more expensive) product mix being sold.
 Pricing (is the revenue growth due to low pricing).
 Costs – are costs increasing disproportionately?
 The fixed costs like people, offices or advertising.
 The variable costs like transaction costs.
 Industry profitability trends — Depending on what the cause for the profit decline is, we may want
to consider one or more of the following issues:
 Changing the product mix offered or promoted.
 Changing the pricing.
 Rationalizing operations.
 Reviewing fixed costs.
Interviewer: Sounds great! Let’s assume that on doing your research, you find out that the lowering of
profits is actually due to the high cost of funding customer growth, including heavy advertising and
introduction of high-cost products. Since the size of the bank is relatively small, the CEO wants to grow by
acquisition in order to achieve economies of scale. The candidate European banks for possible
acquisition are:

Number of Customers Average number of products Average profit per

(thousand) per customer customer

Central Bank of 400 1.8 £ 100

Luxembourg

National Bank of
Belgium 1,200 1.6 £ 150

Bank of France 4,800 1.6 £ 120

Which bank would you select for acquisition and why?

Candidate: Just on the basis of this table, it looks like Bank of France has a large customer base, which
may be an asset as we are looking to achieve economies of scale. The profits of Bank of France are the
highest among three at 4.8 M x £120 = £576M. However, it seems like they are not the best target since
even though they are 4 times of National Bank of Belgium, their average profits per customer are lower.
This may signal that they are not the best for helping our client attain economies of scale, although there
may be other, revenue-side reasons for lower per customer profits.

I will go with National Bank of Belgium, which certainly has the highest profits per customer, which will
help our client Bank of England with the profitability problem directly, as well as through economies of
scale as being 4 times larger (number of customers) than Central Bank of Luxembourg, it also has 50%
higher per customer profits. It seems like they do know a bit about managing their operations.

Interviewer: Interesting. Now I have a little math exercise for you. Assuming for the two acquisition
candidates Central Bank of Luxembourg and National Bank of Belgium, after the base figure of 400,000
customers, for each additional 100,000 customers, a further 4.125% operational cost is reduced from the
cost. Total costs are 60% of revenues for Central Bank of Luxembourg, then how much are the costs for
the two banks?

Candidate: Central Bank of Luxembourg has 400,000 customers, while National Bank of Belgium has
1,200,000. Thus National Bank of Belgium has 800,000 more customers than Central Bank of
Luxembourg, that is 8 * 4.125 = 33% less cost.

For Central Bank of Luxembourg: total costs = 60% of revenues, total profits = 40% of revenues, thus
costs = 60/40 = 150% of profits. Total profits = 400,000 * £ 100 = £ 40 M, total costs = 150% * £40 M =
£60 M.

For National Bank of Belgium: total costs = 60% * (1 – 33%) = 40% of revenues, total profits = 60% of
revenues, thus costs = 40/60 = 66.7% of profits. Total profits = 1.2 M * £150 = £180 M, total costs =
66.7% * £180 M = £120 M.

Coffin Maker Collin’s Considers Selling Business

Case Type: mergers & acquisitions.
Consulting Firm: McKinsey & Company 2nd round internship interview.
Industry Coverage: manufacturing.
Case Interview Question #00236: The client in this case is a coffin and casket manufacturer called
Collin’s Coffins. The company is a medium-sized family-business in Eastern Europe. The CEO has just
inherited the business from his parents. Collin’s Coffins has one large factory (that’s the capital), and
manufactures two types of coffins: machine-made, which are cheaper, and hand-made, which are

premium coffins.  Most of the artisans for hand-made coffins are old, and there
are no skilled young coffin-makers in the market. The CEO is concerned about two major issues:
1. Should Collin’s Coffins continue to turn out hand-made coffins or should it start manufacturing premium
coffins by machines?
2. Should he sell the business entirely? A supermarket has offered to buy the site. Collin’s Coffins is a
good brand, and can be sold separately to a company. That company, though, is not interested in buying
the land.
One of the CEO’s considerations is that he does not want to put the loyal old employees out of work. So,
let’s start with the first question. What are the issues that you will consider in this case?

Possible Answers:

Candidate: Is it okay if I take a couple of minutes to organize my thoughts?

Interviewer: Ummm….you could do that, but I just want a quick high-level view of what you think
immediately about it.

Candidate: Whether to continue to make hand-made premium coffins or to switch to machines for
premium coffins is essentially a question of maintaining status quo versus changing. So we need to look
at the impact of the change.

Products: The first thing I’d like to explore is “why are the premium coffins premium?”. It is quite possible
that the premium coffins are premium because of the fact that they are “hand-crafted”. Thus, this is the
most important question we need to be asking.
Costs: Then there are other issues like costs. Machine-making of coffins seems like a high fixed-costs,
low variable-costs business while hand-making them is a low fixed-costs, high variable-costs business.
Thus, we need to figure out whether machine-making premium coffins requires some sort of special
machinery, or we can make them in the kind of machines that we already have. We also need to figure
out whether our current machine-capacity is sufficient to satisfy the demand for premium coffins or do we
have to buy new capacity. If we have to buy new capacity, we need to figure out whether the investment
is worth it financially.
Company: Also, we need to figure out whether there are production bottlenecks in fulfilling the demand
for premium coffins. In other words, we need to figure out if it is the case that due to the lack of skilled
craftsmen, we are not able to create enough supply to cater to the demand for premium coffins.
We need to think about why is it that new, younger people are not available for making premium coffins.
Are they working for other companies? Are they not learning the trade because it does not pay well?
What makes the old people stick to the trade and what are the things that the younger people value?

We also have to consider the fact that the aging workers won’t be around forever. So what can we do to
get the skills transferred to a younger generation?

Customers: Coming back to the customer, we need to explore what can be done to make machine-made
coffins interesting enough. We need to consider the customers’ willingness to pay and to change their
perceptions about machine-made coffins. For instance, we may find out that machines make
customization possible without a significant increase in the costs. The customers may be willing to pay
premium prices for such customized coffins.
I think these are the fundamental issues that I may want to look at, at first glance.

Interviewer: Good. Now, let’s look at whether he should consider selling off the property altogether. A
supermarket has proposed to pay $20 millions for it. How would you determine whether this is a fair price
for the property.

Candidate: The fairness of the price can be determined by comparing the offer to the going market rate
for similar properties in the area. However, I’d assume that what we are interested in finding out here is
whether this is a price at which Collin’s Coffins factory should be sold off to the supermarket or not.

Thus, I’d want to compare the income from the coffin business to what the supermarket has offered. Now,
income = revenues – costs. So, would you have the costs and revenues figures for me?

Interviewer: Unfortunately, I don’t. You can ask the CEO in the next meeting, but how would you estimate
them now? We do know that Collin’s Coffins has a 3% market share.

Candidate: Ummm….well, estimated revenues = Price x Volume. You just gave a hint as to the volume in
that the market share is 3%. Do we also know about the total size of the market?

Interviewer: Haha! That’s clever. No, we do not know the total size of the market.

Candidate: Okay, do we have an estimate of the total population in the market in which Collin’s Coffins
operates?

Interviewer: Ummm…yes! The population is about 50 millions.

Candidate: Do we know about the life expectancy of that population, or would it be fair to assume the
lifeexpectancy to be 75 years?
Interviewer: 75 years is a fair estimate.

Candidate: Okay, now we know that: Population = 50 million. Average life expectancy = 75 years. Yearly
market demand = 50/75 = 2/3 millions. Company’s sales = 3% x 2/3 millions = 0.02 millions. What about
the prices of the coffins?

Interviewer: What about it?

Candidate: Do we know the prices of the premium and the cheap coffins and the proportion of each sold
by Collin’s Coffins?

Interviewer: Oh, yes. Premium coffins are 40% of the volumes and sell at $2000, while the cheaper ones
sell at $800.

Candidate: Great! And how much does each of them cost to make and market?

Interviewer: The cost of the cheaper coffin is about $300, and the premium one is $500.

Candidate: So, Income from Premium Coffin = 40% x 0.02 million x ($2000-500) = $12 millions; Income
from Cheaper Coffin = 60% x 0.02 million x ($800-300) = $6 millions. Total yearly income = $18 millions.

So even if we look at the income from Collin’s Coffins for two years, and calculate the present value at a
very high discount rate like 20%, keeping the business appears to be more profitable: PV = 18 + 18/1.2 =
$33 millions, which is greater than the $20 million that the supermarket has offered.

Interviewer: Hmmm…interesting, especially because the real discount rate is much lower. Anyways, we
are nearing the end of the interview. Are there any other factors that you would consider?

Candidate: Certainly! We discussed in the beginning that the brand may be sold separately to another
company. We will need to consider the income from selling the brand. Also, if we are selling the brand to
them, they have to be in the coffins business. Thus, they may consider buying the machines that we have
installed. That will provide us additional money. Besides, we can negotiate a deal with that coffin maker to
ensure that our loyal employees don’t lose their jobs. This will be a win-win because as you said good
coffin-makers are in short supply, and getting these workers will allow that company to increase its
production of premium coffins, which have a higher margin.

Interviewer: Excellent! That brings us to the end of the interview. We have just about two minutes left. Do
you have any questions for me?
Delphi Weighs Possible Partnership with Continental in Europe
Case Type: mergers & acquisitions; business competition.
Consulting Firm: OC&C Strategy Consultants final round job interview.
Industry Coverage: automotive, motor vehicles; manufacturing.
Case Interview Question #00211: The client Delphi Corporation is an automotive parts manufacturing
company headquartered in Troy, Michigan, USA. Delphi is an original equipment manufacturer (OEM)
and supplier of auto-dashboards to auto makers in the U.S. and Europe. “Auto-dashboard” refers to the
display panel, and all the gadgets within, that is directly behind the steering wheel, and is a modular
product.

Recently, one of the client’s leading competitors in Europe Continental AG (FWB: CON) has approached
the client with a possible contract / agreement to jointly supply dashboards in Europe. The CEO of Delphi
has hired you to help him analyze the pros and cons of a partnership with the competitor Continental AG.
Specifically, he wants you to address two questions: 1. What’s the motive behind the competitor’s
request? 2. Should Delphi partner with the competitor?
Additional Information:
 Client designs and manufactures instrument (dashboard) clusters.
 Client presence in North America, Europe and Asia. Competitor is present only in Europe and any
partnership would be restricted to European region only.
 Customers are primarily auto manufacturers – Contracts are long-term in nature. For example
BMW typically would work with the supplier for cars to be rolled out 3 years in the future.
 Product mix: 3 types of dashboards – high end, middle and low end dashboards. Maps to high-
end, middle and low end autos – but car manufacturers may offer upgraded instrument panel on any
car.
 The customer base in Europe can be categorized as 20% low end, 50% middle and 30% high
end. Margins across these segments are low: ~0%, middle: 1-2% and high: 12-15%.
 The high end segment has the fastest growth.
 Competitor Continental AG has 50% of the high end market in Europe and no presence in low
and middle end market. Client is primarily a player in the low end and middle market segments with
5% presence in the high end market.
 No big difference in quality, features and functionality between competitor and client’s car
dashboard products.
 Industry trend to have same modular dashboard across different segments to have economies of
scale. Low end BMW and High end BMW will have the same basic box, with the only difference being
in some bells and whistles.
Possible Approach:

1. Structure the analysis using a 3-C or similar framework to methodically get all the required information.
2. Understand that low end is a commodity and client really is not making too much profits right now,
while the competitor is – hypothesize that there must be a strong motive behind the sudden urge to
‘share’ profits!

3. Analyze the given facts and figure out that auto manufacturers have substantial bargaining power –
and may be looking for same supplier for all 3 of their segments.

4. Competitor makes a pre-emptive move to partner with client to avoid auto manufacturers switching
their high-end dashboard supplier to someone who can supply dashboards for all 3 segments, like our
client.

Better Answers:
Additional questions and observations should include a clear discussion of the pros and cons of the
partnership beyond the motive.

 Pros:
 Economies of scale for client, but since this is an “arms-length” contract both parties may
not merge operations.
 End customer relationship may be better streamlined – one team per auto manufacturer
instead of one team per segment.
 Research & Design costs can be shared.
 Cons:
 Lose opportunity to be a big player in the profitable high-end market.
 Agency costs – competitor may not share its high end segment with us in a fair manner.
Outstanding Answers:
1. Candidate should recognize that a lot of operational synergies are not possible in an “arms-length”
contract such as this one. So pros should be based on practical synergies in a partnership situation.
2. Recommendation can be either to partner or not, but should be based on candidate’s estimate of the
advantages versus the disadvantages.
3. A nice way to understand the issue is to go through the value chain from design to manufacture to
assembly to customer relationship and articulate what a contract will mean in each of these stages.
4. It is very important to understand the macro issue – auto manufacturers are moving to integration of the
segments – before getting into the details of the case.

Encyclopedia Britannica to Enter Online Web Business

Case Type: new business; industry analysis; mergers & acquisitions.
Consulting Firm: ZS Associates final round job interview.
Industry Coverage: E-commerce, online business; mass media & communications.
Case Interview Question #00194: A wealthy Swiss trader who has amassed large amount of money
while working for UBS Global Asset Management (SIX: UBSN, NYSE: UBS) wants to invest part of his
personal fortune. He has just bought the Encyclopedia Britannica, Inc., an old and respected
encyclopedia company. He now wants to enter the Internet and online business field. You have been
hired as a consultant to help him put a plan together. How would you advise him?

Additional Information:
 The Swiss trader has no prior expertise in web-related business services.
 Encyclopedia Britannica is the best brand name in the world for encyclopedia.
 Current product line of Encyclopedia Britannica include print edition of encyclopedia and CD
ROM version.
 Capital is not a constraint for the wealthy Swiss trader.
In this case, it turns out the Swiss trader has no idea what the final “web” product looks like. The
candidate should first narrow down the possibilities, for example:

 Search engine – (free/pay for use)

 Web-site that peddles information (free/pay for use).
In this case, the Swiss trader wants a new search engine/site.

Possible Answers:

First, the candidate should try to determine the Swiss trader’s purpose of entering the new business of
web-services.  – To design a product that is much better than existing products, and to capitalize on the
brand name at the same time.
What is the value proposition? – To provide a search engine that provides accurate information without
hassles, quickly and efficiently.

Other key areas for discussion:

A. Competition There are two dimensions to choose from:
1. Compete on quality

 Big 3 search engines: Google, Yahoo, Bing and Wikipedia are the main competitors.
 Requirements: human input to rate quality of content on websites.
2. Compete on powerful search engines, with no human intervention

 Alta Vista, Excite, HotBot are the main competitors

 Technology is the key competence.
Choose the following metric to measure performance against competition, and to measure progress.

 Number of hits, page views, visits, etc.

 Page rank, authority ranking, authority index.
 Ratings by internet magazines, and other reviewers/raters on the Web, online reputation.
 Number of websites accessed or “listed”, number of backlinks.
B. Revenue Sources Possible sources of revenue include:
1. Advertisers:

 Advantage: Revenue stream more certain, need a smaller number of payers to support
operations
 Disadvantage: Hassle of loading pages with ads to users
2. Customers: ( Pay per use / periodic subscription)

 Advantages: Users can be assured of ad-free operation, greater credibility.

 Disadvantage: Need a much higher customer base quickly to support operations. Also future
revenue stream is uncertain as it depends on future usage.
C. Customers
1. Who are the new business’ potential customers?

 Advertisers
 Visitors to web-site
a. Current audience– based on current usage data and current profiles, e.g., age, income groups,
types of sites visited, and main purpose of using the Internet.
b. Future audience – will depend on trends in the industry, and emerging major uses of the Internet.
(Note: The resolution of this issue needs to be done simultaneously with the issue of Revenue
Sources outlined above. Since client is still only exploring options, lay down the issues anyway)
2. What does your target market want? – Client doesn’t have any data. Need to find out. Methods: Online
surveys, etc. Be prepared to discuss what exact questions you will put on this survey, what information
you are trying to elicit, and how you will use that information.

3. How best to give customers what they want? – This will revolve around web design, and selection of
most appropriate technologies to implement the site.

D. Core Competencies:
1.What core competencies are required to succeed in the business?

 Depends on whether client wants to compete on “quality” or “quantity”

 Competing on quality makes more sense given their known expertise in information, and their
respected brand name.
 If competing on quality, key competencies required are:
 Access to current, accurate information.
  Brand name.
 Ability to constantly update information and new websites. This is especially important if
customers are paying for service.
2. What core competencies does the client currently possess?

 Brand name
 Expertise in the information business.
 Key take away from this analysis is that client lacks the technological capability to maintain
current information at the speed required in an Internet-based business.
3. How is the gap between the two going to be bridged?

 Acquire the technology.

 Acquire skilled programmers.
 Issues to consider here are the cost of such acquisition versus the benefit, and the time it will take
to execute.
Note: This case has no real “solution” as it is open ended. The client is just looking to you to lay down the
issues in entering a new business. An exceptional answer will summarize the key points in a visual
manner via a chart or table.
Private Equity Firm KKR to Buy Failing Lumber Company
Case Type: mergers & acquisitions; private equity, investment.
Consulting Firm: OC&C Strategy Consultants second round job interview.
Industry Coverage: Forestry, Paper Products; Financial Services.
Case Interview Question #00151: Our client KKR & Co., formerly Kohlberg Kravis Roberts & Co.
(NYSE: KKR), is a global private equity firm specializing in leveraged buyouts. KKR has retained your
consulting services to help them evaluate a medium-sized lumber company as a potential acquisition

target.  How would you determine whether the acquisition is worthwhile for your
client?
Possible Answers:
First ask what are KKR’s specific motives for acquiring the lumber company? For example, are they
looking to sell off pieces of a failing company to competitors who could run it better or are they looking for
a well-run, profitable business to invest?
Because most of the lumber company’s wood products are sold as structural material to the construction
industry, it faces cyclical demand.
Most of the lumber company’s production facilities are fully depreciated and somewhat antiquated.
Some reduction in the workforce will be necessary to achieve levels of efficiency on par with the best
players in the lumber industry.

The company has extensive holdings of forests with a historical ROI (Return On Investment) for these
assets of 16%. However, this is less than the company’s cost of capital of 18%. If the company were
acquired by KKR, some of the acreage of forests could be sold to
1) provide cash to fund capital improvements and
2) improve ROA (Return On Assets).

The potential exists to appease environmentalists and improve operating efficiencies by increasing
selectivity in tree cutting and upgrading the process machinery to peel trees more efficiently.

Conclusion: Ultimately, the decision of whether or not to acquire the lumber company should be based
on a conservative assessment of
1) market potential
2) the potential to improve the company’s operations, and
3) predicted competitor’s reaction.
Perform a market, company, customer, and competitor analysis first. Because of the cyclical nature of the
lumber industry, it is important to examine the downside and upside scenarios. Sales below projections
will be a problem, but sales growth higher than expected may also be a problem if the company is short
on working capital and operating at full capacity.

Post Wyeth Merger, Pfizer Concerned by Lost Jobs

Case Type: HR/organizational behavior; mergers & acquisitions.
Consulting Firm: Deloitee Consulting first round job interview.
Industry Coverage: Healthcare: Pharmaceutical, Biotech, Life Sciences.
Case Interview Question #00148: Our client Pfizer (NYSE: PFE) is a global, research-based
pharmaceuticals company with more than $50 billion in revenues. Pfizer recognizes that the profits it
enjoys will significantly decrease as its patents expire: Pfizer faces a run of 14 patent expirations through
2014, which would add up to lost revenue of about $35 billion as those drugs give way to cheap generics.
However, it believes that building a stronger drug pipeline can stave off losses when its best-sellers go off
patent, and so it is pushing for new blockbuster drugs.

In 2009, Pfizer paid $68 Billion to acquire another leading pharmaceutical company Wyeth in a cash and
stock merger. However, the overall company size has declined by about 5 percent this year (Pfizer
employs approximately 116,500 workers as of 2010). Our client is quite concerned that the company is
losing top talent. Moreover, with the retirement of the Baby Boomers only about five years away, 25
percent of its workforce will soon be eligible for retirement.
The CEO of Pfizer has hired Deloitte Consulting. You are a Consultant assigned to this project team. Your
responsibility is to assess to what extent current HR programs effectively manage talent and to make
recommendations for managing critical talent in the future. How would you go about structuring this
analysis? Keep in mind the people and processes involved in each step.
Possible Answers:
 Identify and assess the key talent across the company.
 Talk to employees to find out why they are leaving. Don’t operate in a bubble.
 Benchmark current HR policies and processes.
 Analyze critical workforce segments.
 Provide short-term and long-term strategic recommendations to Pfizer CEO.
Goldman Sachs Capital to Invest in Royal Caribbean
Case Type: private equity, investment; finance & economics; mergers & acquisitions; math problem.
Consulting Firm: Capital One first round job interview.
Industry Coverage: Financial Services; Tourism, Hospitality & Lodging; Transpoortation.
Case Interview Question #00142: Your consulting team has been retained by Goldman Sachs Capital
Partners, the private equity arm of Goldman Sachs (NYSE:GS). Based in New York City, New York, GS
Capital Partners is focused on leveraged buyout and growth capital investments

globally.  It has raised approximately $39.9 billion since inception across seven
funds and has invested over $17 billion.
To diversify its assets, GS Capital Partners is considering purchasing one of two cruise lines: “Carnival
Cruise Lines” operates in the Mediterranean and has an initial cost of $25 million, while “Royal Caribbean”
operates in the Caribbean and has an initial cost of $50 million. Both cruise lines are profitable, and
Goldman Capital has an ROA (Return On Assets) of 20%. Which one would you advise Goldman to
choose? How would you start your analysis? What factors do you need to consider?
Possible Answers:

Factors/Issues to Consider:
 What is the primary goal/motive for the purchase (asset diversification, extension of existing
business line, improving profitability, etc.)?
 What are any potential synergies or core competencies that Goldman Sachs Capital can leverage
to this business?
 Are there any environmental factors, e.g., political, international, economic such as inflation,
exchange rates, tax rates, demand cycles?
 What is each cruise line’s useful life? (Assume 10 years.)
Assume all of the above does not significantly impact your analysis and go with the choice that will yield
the highest Net Present Value (NPV). Assume tax rate is 60% for “Carnival Cruises” in the Mediterranean
and 40% for “Royal Caribbean” in the Caribbean.

Comparison of two choices

Carnival Cruises Royal Caribbean

Operation Revenues

# of Passengers 100K per year 100K per year

Average Fare $500 per passenger $500 per passenger

Annual Revenue $50M $50M

Operation Costs

Fuel $1M $500K

Labor $2M $8M

Food $40.8M $20.4M

Docking $.15M $75K

Annual Cost $43.95M $28.975M

Annual Profit $6.05M $21.025M

Tax Rate 60% 40%

After Tax Profit $2.4M $12.6M

PV@20% discount rate over 10 years $10M $52.8M

Initial Cost ($25M) ($50M)

Net Present Value (NPV) ($15M) $2.8M

Therefore, choose “Royal Caribbean” for sure.

STEM Commercializes New CNS Stem Cell Product
Case Type: new product; mergers & acquisitions.
Consulting Firm: Simon-Kucher & Partners (SKP) second round job interview.
Industry Coverage: Healthcare, Pharmaceutical, Biotech & Life Sciences; Small Business, Startups
Case Interview Question #00129: You client StemCells, Inc. (STEM) is a small life sciences and biotech
startup based in Palo Alto, CA. The company has invested a huge amount of money in research

&  development (R&D) and was recently granted a patent for a new
breakthrough in using human neural stem cells product to treat chronic spinal cord Injury. The client has
retained your consulting team and wants to know what approach it should take to commercialize this new
product. How would you go about analyzing the case?
Additional Information: ( to be given to you if asked for)
 How long is the patent protection? 10 years
 Are there any competitors? No. This product would create a new market
 Market potential? The client expects sizable immediate demand
 How much money has been invested in R&D? Substantial amounts
Possible Answers:

Part 1: Market Strategy –  the following aspects should be discussed

 Managing hyper growth
 Optimal acquisition strategy (new customers)
 Appropriate pricing via EVC (Economic Value to the Customer) analysis
Part 2: Operations Strategy – the following aspects should be discussed
 Costs: fixed and variable
 R&D Resources/Strengths
 Required Capabilities: Buy, Build, or Partner?
 Manufacturing: in house vs. outsourcing
 Marketing & Sales
 Distribution Channels
Part 3: Finance Strategy – Discuss the following aspects
 Debt vs. Equity to finance growth
 Timeline to break even
Part 4: External Factors – Discuss the following aspects
 Legislation
 Suppliers of raw materials
Partt 5: M&A Potential – Interviewer asks the candidate to discuss various entry strategies available to
the client with respect to introducing the product in the market.
Possible Answer:
 STEM has several options:
 Acquire a company that provides manufacturing and marketing capabilities
 Joint venture with another company
 Outsource manufacturing, marketing and distribution channels
 Grow skill sets organically, ergo more slowly
Part 6: Evaluating M&A options – Interviewer asks the candidate to evaluate the pros and cons of the
different strategies suggested above
Possible Answer:
Given that STEM is a small R&D startup, its core competency is not in the area of manufacturing,
marketing, and sales. STEM should certainly pay attention to the profitability of these strategies, but also
bear in mind the risk (while going alone may allow STEM to keep all the profits, it has many more pitfalls
than teaming with an established player in the industry.)
The following comparison matrix presents the pros and cons of the various strategies

Criterion Develop capability internally Get external partners

Speed Slow Fast

Cost Benefits Expensive Cheap

Growth / Future capabilities Fast and sustainable growth Slow growth

Part 7: Patent Pricing Strategy – Interviewer informs the candidate that STEM has decided to sell the
patent to an established pharmaceutical firm and asks how he/she might derive an acceptable price for
the product from the pharmaceutical company.
Possible Answers:
 Conduct Economic Value to the Customer (EVC) analysis
 Surveys to potential customers in order to conduct a conjoint analysis
 Chance to price discriminate among segments (if it can tweak product attributes)
 Analyze past introductions of new products for historical sales trends
 Focus group experiments in separate, comparable regions (to find price elasticity)
 Lower the price in one and raise the price in the other
 Compare the sales volume over a period of time
Part 8: Consumer Segmentation – Interviewer informs the candidate that the new market has two
segments, healthcare providers and home users and asks him/her to list some differing characteristics
between the two segments that might affect the client’s marketing strategy.
Possible Answers:
Criterion Healthcare Provider Home User

User’s preferences Cost, Maintenance Ease of use, reimbursable costs

Who is the Decision
Maker? Doctor / Procurement Manager User/Parent/Spouse

Contact strategy Trade shows, Direct marketing Doctor(push)/TV, or print ads (pull)

Experienced sales force to convince

Resource requirements doctors or procurement manager Convenience, ease of use

Interviewer’s Note: This is a “Launch New Product” case combined with a piece on M&A. The case is
structured on the 3C’s framework and combines the following two questions:
1. What are the core competencies of this company?
2. Do they have the funds to develop the capacity in-house, or should they be looking for a partner or
buyer for the patent?
Large Shareholder Backs HP-Compaq Merger
Case Type: organizational behavior; mergers & acquisitions.
Consulting Firm: Deloitte Consulting second round job interview.
Industry Coverage: Computers, Office Equipment; Software, Information Technology.
Case Interview Question #00127: Your client Hewlett-Packard Company (NYSE: HPQ), commonly
referred to as HP, is a multinational information technology corporation headquartered in Palo Alto,
California, USA. One of the world’s largest IT companies, HP specializes in developing and
manufacturing computing, data storage, and networking hardware, designing software and delivering
services. Major product lines include personal computing devices, enterprise servers, related storage
devices, as well as a diverse range of printers, scanners and other office equipment products.

In September 2001, HP announced that an agreement had been reached with Compaq Computer
Corporation to merge the two companies. The merger of the two major technology companies forged a
team of 140,000 employees with capabilities in 160 countries, doing business in 43 currencies and 15
languages.

Numerous HP shareholders, including Walter Hewlett, publicly opposed the deal, which resulted in an
impassioned public proxy battle between those for and against the deal. Contested by key members of
the board until the final hours of the transaction, the merger had a media “fishbowl” effect. In addition,
myriad rumors regarding layoffs heightened internal anxiety. Your client needed to quickly formulate a
strategy to deal with the rumors, stabilize the workforce, and set the
strategic agenda for change.
As a member of the project team – how would you structure an approach for HP’s executives to
successfully address the potential issues and realize the full value of the acquisition and merger?

Possible Answers:

Short-term Strategy
 Develop and deliver internal and external communications to all stakeholders (shareholders,
Board, the Street, acquired employees, legacy employees)
 Deliver honest, detailed communications as soon as possible to stop rumors (Key leadership from
both companies should deliver these messages)
 Review both organizations “as is”: culture, shared services at both organizations (i.e., HR,
Finance, etc.), talent (what kind of skills/people need to be retained at both organizations).
 Conduct a gap analysis between “as is” and “to be”.
Long-term Strategy
 Solicit feedback: Talk to the employees to find out the rumors/concerns/fears, etc.
 Create a website that with all the information about the merger (include a place to post
questions/concerns/issues and make sure these are addressed so people don’t feel like it’s a black
hole)
 Execute: Move new organization towards “to be” state
 Develop new job roles/functions
 Talent management (prevent intellectual capital drain)
 Rationalize redundant services (e.g., HR, finance, benefits, etc) – maybe employ Total
Rewards practice
 Establish the culture of the new organization (not a merger of equals, but the acquired
company should not feel like they are losing their identity/culture) through leadership, training,
communications, etc.
 Develop and implement appropriate incentives: You get what you reward/ must be
aligned to strategy
Note: In May, 2002 Hewlett-Packard Company (NYSE:HWP) announced that it completed its merger
transaction with Compaq Computer Corporation (NYSE:CPQ) as planned. The trading of Compaq
common stock will be suspended before the opening of the market on May 6, 2002, and HP will begin
trading under the new NYSE symbol HPQ.
Yahoo Responds to Google’s YouTube Acquisition
Case Type: mergers & acquisitions; business competition/competitive response.
Consulting Firm: Katzenbach Partners (now Booz & Company) final round job interview.
Industry Coverage: E-commerce, Online Business; Software, Information Technology.
Case Interview Question #00125: It was October 2006. Search engine giant Google (NASDAQ: GOOG)
just announced that it has agreed to acquire YouTube, the consumer media company for people to watch
and share videos online, for $1.65 billion in a stock-for-stock transaction. 
Following the acquisition, YouTube will operate independently to preserve its successful brand.
You have been retained by the internal strategy group at Yahoo (NASDAQ:YHOO), an Internet services
company best known for its web portal, email service and search engine Yahoo Search. You are asked to
analyze Google’s announced acquisition of YouTube. Is this move a competitive threat for Yahoo? And
why?
Possible Answers:

Part 1: Core Competencies and Overall Situation Analysis – The interviewee should think about the
acquisition against the backdrop of the core competencies that each firm brings to the table. There are no
absolute right/wrong answers; one approach is outlined below.
Suggested Answer: Yahoo has positioned itself as a destination site. It wants consumers to go to
Yahoo! and explore all of its wonderful services, spending time and money there. Time means that
advertisers’ ads are more likely to be clicked. Money means that Yahoo! is making e-commerce
transactions, or selling subscriptions to premium online services. It tries to promote a sense of community
among its users.
Google has spent its early years as a search engine. To ‘google’ has become synonymous with search.
To take advantage of this brand-name recognition, Google pioneered advances in ad-based software that
allowed businesses to better target consumers segments based on the particulars of the search (Google
Adwords and Adsense). Google has the “eyeballs” of the consumers, but it doesn’t have the consumers’
wallet. It wants to monetize all its traffic.

The acquisition of YouTube by Google is a competitive threat. Google’s acquisition is a move toward
creating an online community. The company spent $1.65 billion because it believes it will be able to
monetize this traffic somehow.

Part 2: Competitive Response – Inform the candidate that Yahoo wishes to counter this threat and
assume that feasibility and cost are not a concern at this point. Ask the candidate to develop a
competitive response and give candidate creative license. There are no absolute right/wrong answers;
some ideas are outlined below.
Commentary/Notes: The candidate should ask for a moment to collect his/her thoughts, and ideate
creative solutions.

Suggested Answers:
 Create an offering to counter YouTube for the Yahoo community.
 Buy Google.
 Find a way to share real-time videos among friends from cell phones, mobile devices or
wristwatches. This would involve a cross-selling strategy with a partner. (Apple, Microsoft, Amazon,
Facebook, MySpace?)
 Create backdrops (or allow open source coders to create them) from historical events or sporting
arenas or famous movies, and enable people to be able to re-enact scenes or create new ones (An
example of this might be a rock stadium backdrop and you and your friends can jam on instruments
and make a rock video).
Part 3: Customer acquisition – Provide interviewee the hypothetical situation in which Google proceeds
with the YouTube acquisition and believes that it can charge $150 per user annually and make 67%
margins. Ask the candidate to compute the time taken to recover the acquisition costs.
This part of the case is a simple math exercise. Information to be given if asked: Assume YouTube user
base 40 million; Discount rates should be ignored; Assume no user base growth or attrition.

Answer:
 User base: 40 million
 Acquisition Cost = $1.65bn
 Therefore, Margin/user needed to recover acquisition cost = $1650/40 = $41
 Actual Margin/user = $150 x 67% = $100 per year
 Therefore, Google will recover acquisition cost in less than 6 months.
Interviewer’s Note: This case involves assessing the potential threat of competition’s merger to the
business. The case is primarily qualitative in nature and tests the candidate’s conceptual understanding of
M&A activity and overall business knowledge/judgement. The case offers the candidate several
opportunities to be creative in problem-solving. A quality candidate will imbue the discussion with
structure, creative solutions, and demonstrate knowledge of current business landscape.
Holcim US to Acquire Local Firm in Midwest
Case Type: mergers & acquisitions.
Consulting Firm: AlixPartners 1st round job interview.
Industry Coverage: Building Materials; Engineering & Construction.
Case Interview Questions #00122: The client Holcim Group is a Swiss construction and building
materials company that manufactures and supplies cement, aggregates (gravel and sand), concrete and
construction-related services. From its origins in Switzerland, Holcim Group has grown into a global

company  with market presence in over 70 countries on all continents, employing

some 90,000 people. It is currently (as of 2009) the second largest cement manufacturer in the world, just
behind French company Lafarge.
Recently, the CEO of Holcim USA is considering acquiring a small local construction and building
materials company in the midwest. You were hired to advise him on this acquisition. What factors should
be considered?
Possible Answers:
 What is your client’s motive for this acquisition? (profits diversification, market share, etc.)
 What is the current profitability and market share of the acquirer and target firm?
 What is its capacity to fund this acquisition? (Does it have the necessary capital or how will it
raise these funds?)
 In what direction is the market moving?
 Who are the customers and end-users of the product? What are their needs and preferences in
this market?
 What are the competitive conditions in this market? What will the competitors’ reaction be?
 How does this line of business of the target firm differ from that of the acquirer? (Do synergies
exist?)
 Are there any barriers to entry in trying to compete in this market once it acquires the firm?
 Will the client have access to raw material suppliers and distribution channels?
 What is the client’s bargaining power going to be like with both parties?
The basic viability of the acquisition also requires consideration of the following issues:

 The number of forthcoming government projects in the area, e.g. interstate road construction.
(since they are probably the largest end-users)
 The condition of the target company’s facilities and the quality of its management
 The drivers of change in this industry including local state anti-trust legislation and the
competition
 In this case, while cement is a homogenous commodity, the cost of its transportation means that
the applicable market is not of a product, but of a product-region. Thus, considerable potential may
exist for gaining small-scale monopolistic power through this acquisition.
Nestle to Merge Its Ice Cream Subsidiaries
Case Type: HR/organizational behavior; mergers & acquisitions.
Consulting Firm: Putnam Associates 1st round job interview.
Industry Coverage: Food and Beverages; Household Goods & Consumer Products.
Case Interview Questions #00095: Your client Nestle S.A. (SIX: NESN) is a large diversified foods and
consumer products company, founded and headquartered in Vevey, Switzerland. Nestle originated in a
1905 merger of the Anglo-Swiss Milk Company and the Henri Nestle Company. Today, the company

operates  in 86 countries around the world and employs nearly 283,000 people.
The board of Nestle is considering merging two of their subsidiaries that sell ice cream: Dreyer’s Grand
Ice Cream Holdings and Delta Ice Cream. One of them is very innovative and profitable, and the other is
not. Nestle has hired you as a consultant to advise them on this matter. Should the two subsidiary ice
cream companies be merged and why?
Possible Answers:
I first asked what was the impetus for considering the consolidation. I then explored some of the potential
synergies of a merger (e.g., eliminating redundant operations). I also asked about the parent company’s
history of similar types of internal mergers. I talked about the potential opportunities for increasing the
level of innovation of the less creative subsidiary but also about the potential concern of just the opposite,
the watering down of the more creative organization.
The interviewer was interested in having me go down the innovation path and he asked me how would I
go about transferring the innovation of one subsidiary to another. I first attempted to define what made up
innovation and I mentioned product development (R&D) and marketing. I discussed the need to explore
the processes involved within these functions (some re-engineering-type issues) and also about having
the leadership for these responsibilities transferred to the more creative firm. He further probed about
“processes” and I discussed cycle time and project management in the R&D department.

In general, the approach of the interviewer was to ask very broad questions, listen to my big-picture
response, then quickly choose one path and go down it in detail. The tone of the interview was very
conversational.

The Rise and Fall of Quotron Systems

Case Type: mergers & acquisitions; HR/organizational behavior.
Consulting Firm: Mitchell Madison Group 1st round job interview.
Industry Coverage: Financial Services; Software & Information Technology
Case Interview Questions #00087: You have been hired by Quotron Systems, Inc., a New York City-
based IT company that makes and sells electronic systems that deliver stock market quotations and
financial news to brokerage houses via computer terminals that the clients purchase and pay for on a

yearly basis.  Their largest client, brokerage house Merrill Lynch, recently has
decided not to renew their contract with Quotron. Citibank (NYSE:C) has recently purchased Quotron
Systems.
The management of Quotron thinks that Merrill Lynch has discontinued the contract because Merrill’s
competitor Citibank now owns Quotron. Nevertheless, they are very concerned and want to hear your
advice. What would you do to resolve Quotron’s problem.
Possible Answers:
me: First I would want to test Quotron’s assumption that the reason behind Merrill Lynch’s decision to not
renew the contract stems from the recent Citibank acquisition.

Interviewer: How would you go about that?

me: I would try to find out which person(s) at Merrill made the decision and talk to him/her about this.

Interviewer: Let’s say I am that person and I have agreed to be interviewed by you. What do you want to
ask me?

me: I would ask questions about what the reasons for the decision were and how Merrill intended to use
the new software that they were going to develop. (Strictly for internal use? Or would they also try to sell
the service to other brokerage houses?)

(Information to be given to interviewee) It turned out that Merrill required some additional services that
Quotron did not offer. Merrill had approached Quotron about customizing the product, but Quotron
seemed uninterested. Merrill then researched the possibility of building their own system. They now think
that they can build a system internally for less than what Quotron currently charges them. They intend to
use the system internally only. The issue of Quotron recently being purchased by Citibank was never
mentioned.

Interviewer: Good. What would you do next?

me: I would tell my client, Quotron the results of my interview. I would then try to figure out if Merrill really
could develop a system today that would do everything that they want it to do, for less than Quotron
currently charges.

Interviewer: Good. That’s exactly what we did. Once we researched the issue, here is what we found. (He
drew a graph with # of branches on the vertical axis, and # of people/branch on the horizontal axis, and a
slightly downward loping line that represented the ‘equilibrium line’ where the costs of building the system
would exactly match the benefits.) Merrill was the only company above the line (meaning it did make
economic sense for them) and all other brokerage houses fell below the line. What would you tell
Quotron?

me: First, in the immediate term it looks like Merrill is the only customer who is likely to defect, which is
good. However, Merrill, having canceled their contract for next year, apparently thinks that they can build
their own system from scratch in less than a year, which, if true, is worrisome. I would be concerned that
Merrill will, in fact, go into direct competition with Quotron.

I would also be concerned about consolidation in the brokerage industry that might bump some of the
smaller houses above the line where it would make sense for them to build their own systems rather than
buy from Quotron.
Additionally, the costs of building a new system from scratch may go down quickly in the near future as
hardware and software costs continue to decline rapidly from year to year. This would shift the equilibrium
line on the graph downward, bringing more brokerage houses above the line.

So Quotron needs to begin researching ways to improve the quality of their system and lower their cost
structure if they want to continue to be an attractive option for brokerage houses in the future.

Interviewer: Great! Let’s just stop there.

Note: The interviewers did a great job of making the interview, especially the case part of it, seem less
formal and intense than I might otherwise have expected. They emphasized that there is no correct
answer and that they simply want to see how I would work my way through a problem. This, while not
completely eliminating the pressure I felt going into the interviews, did help.

Additional Background Information:

In the early 1970 to 1980′s, broker workstations were the Holy Grail at major retail-brokerage houses, as
firms like Merrill Lynch and Prudential-Bache rolled out the first PCs. It was a time when the major
market-data vendor was Quotron Systems, a brand as powerful as Kleenex or Xerox, and Automatic Data
Processing was buying up companies (Bunker Ramo and GTE) to compete with it.

Up until 1990, many of the quote vendors forced customers to use proprietary hardware so they would not
lose control over the data. Quotron and ADP had a little truck that rode around Manhattan delivering
hardware. The rivalry was intense. It didn’t help that Quotron was acquired by Citibank, a competitor to
Quotron’s largest brokerage customers. George Levine, Quotron’s marketing executive, tried to keep big
customers happy. ADP stole away the Merrill account from Quotron and then won Shearson, but
Quotron’s dominance unraveled with its antiquated technology.

Citibank purchased Quotron in 1986 and held on until 1994 when Quotron was sold to Reuters. By the
time of the Reuters purchase, Quotron was much smaller than in their 70′s – 80′s heyday.

Quotron’s Advantage AE product survived and was marketed as Reuters Plus. This product was actively
used through the ’90s as a market data application by professional traders and brokers. Quotron staff in
NY were rolled into Reuters America and moved to 1700 Broadway. By 1994 the LA manufacturing arm
that produced all those Quotron terminals and custom hardware had been scaled back to bare minimum.
Development staff for Advantage AE continued to work in the LA site through the mid 90′s.

Dow Chemical Evaluates Prospects of Rohm & Haas

Case Type: mergers & acquisitions.
Consulting Firm: Aon Hewitt 2nd round job interview.
Industry Coverage: Chemical Industry.
Case Interview Questions #00071: Dow Chemical Company (NYSE: DOW), a major chemical
manufacturer has hired your consulting team to evaluate Rohm & Haas Company (NYSE: ROH), another
major participant in the chemical industry, for possible merger and acquisition. Both companies are bulk
commodity chemical producers. You have been asked to begin the work

by  analyzing the future prospects of Rohm and Haas in terms of its major
product line, a bulk chemical used in the production of plastics.
Additional Information (to be given to you if asked):
 Production of this chemical has slowly declined over the last five years.
 Prices have declined rapidly.
 There are 7 to 8 major players; the largest producer has a 30% share; number two has 20%; our
target company has 15%; the rest is divided among other small competitors.
 Profitability in the industry is relatively low. The two largest competitors (DuPont and BASF) earn
a small return; target company is probably at break even; rest are operating at break even or loss.
 The largest competitor DuPont has just announced construction plans for a major new plant.
How would you structure an analysis of Rohm & Haas’s future prospects in this product line?

Possible Solution:
The job candidate should, at a minimum, address the following issues:
 What markets use this chemical, and what has been the nature of growth in these markets? (End
use markets are largely automotive related.)
 How much overall capacity exists now? (Far too much.)
 What has been relative capacity utilization of competitors in the industry? (60 to 70 percent for
last 3 years).
 What are relative cost positions of competitors? (related to size/efficiency age of plant; target
company has reasonably “good” position.)
Better Solution:
Better answers will move beyond the previous answers to consider:

 How rational is pricing? (Prone to self destructive cuts to gain temporary share points.)
 Are there niche or value added uses for chemical? (Not really.)
 Does the chemical have a major by product or is it a by product? (Not of significance.)
 How often have companies entered/exited, and how expensive is entry/exit? (Entry expensive;
exit cheap for most because older plants are fully depreciated.)
 How important is this product line to each of the competitors? (Most producers are diversified.)
Outstanding Solution:
The best answers could address:
 Reasons for announced capacity expansion. (It is a bluff to try and get smaller competitors to shut
down.)
 Is regulation important? (Yes: all competitors have installed pollution control equipment.)
 What is nature of operational improvements that target company could make? (lots.)
 How is product sold and distributed? (Economies of scale in marketing and transport are critical.)
 Is there synergy between our client and target? (not really.)
CEMEX Considers Acquiring Miami Cement Company
Case Type: mergers & acquisitions.
Consulting Firm: Monitor Group 2nd round job interview.
Industry Coverage: Building Materials; Manufacturing.
Case Interview Questions #00027: Your client CEMEX (NYSE: CX) is the world’s largest building
materials supplier and the third largest cement producer. Founded in Mexico in 1906, the company is
based in Monterrey, Mexico. CEMEX has operations extending around the world, with production facilities

in  50 countries in North America, the Caribbean, South America, Europe, Asia,
and Africa.
Recently, the senior management of CEMEX USA is considering acquiring Miami Cement Company, a
small local firm in southern Florida. You have been hired to advise them on the possible acquisition. What
factors should be considered? After considering these factors, would you recommend the acquisition or
not?
Additional Information: (to be given to you if asked)
The target firm Miami Cement Company is currently profitable, with margins of 5%. Your client CEMEX
USA’s margin is 15%. Your client attributes its higher profit margin to economies of scale in trucking and
mixing, and a stable labor force.

Both companies compete in the same geographical market, the Southeastern U.S. Your client’s
customers are large construction firms and contractors generally in the office and commercial building
construction business. The smaller firm Miami Cement Company sells mainly to other small businesses
and contractors, such as swimming pool installation firms, patio builders, etc.

Additional research shows that the smaller customers for concrete are growing, while the major office
building construction market is stagnant. The smaller firm Miami Cement Company has strong contacts
with many local customers, and is often the preferred supplier due to their customer responsiveness.

Your client is not able to fund the acquisition internally, but could obtain bank financing at a rate of 10%.
Similar acquisitions generally are made for two to three times current sales of the target firm.
Possible Answer:
From a simple financial point of view, the acquisition is not attractive if there are no synergies between the
two firms. With profit margins of only 5%, the income generated by the smaller firm will not cover the
capital charges (interest due to the bank) on the acquisition loan:
 Acquisition loan = 3 x sales.
 Interest on this amount will be 10% x 3 x sales, or 30% of annual sales.
 Profits are only 5% of sales.
This analysis, of course, ignores the tax shields.

However, if your client were able to use some of its competitive advantages to improve the financial
outlook of the target firm, the acquisition would be advisable. It is reasonable to expect that synergies
would arise from economies of scale in trucking and mixing, which could raise the profit level of the target
firm, and make the acquisition more attractive.

Conseco’s Acquisition of Green Tree Financial Not a Good Deal

Case Type: mergers & acquisitions; investment.
Consulting Firm: Boston Consulting Group (BCG) 2nd round job interview.
Industry Coverage: Financial Services; Insurance: Life & Health.
Case Interview Questions #00023: Your client Conseco Inc. (NYSE: CNO) is a large financial services
company based in Carmel, Indiana. The company is in the business of life and health insurance.
Conseco’s insurance subsidiaries provide life insurance, annuity and supplemental health insurance

products to more than 4 million customers in the United States.

During the years 1983 – 1998 Conseco was a great performer and lead the S&P 500. Conseco’s main
growth engine was its successful acquisitions. On average, the company acquired a target every 6
months. In 1998, Conseco purchased Green Tree Financial, one of the largest financiers of mobile
homes, in an attempt to diversify into consumer financial services.
Surprisingly, the day after the deal was announced Conseco’s share price dropped 20% and a year after
the share was down 50% from its price the day before the announcement. You were hired by the CEO of
Conseco to explain this dramatic drop in the share price and to suggest a course of action. How would
you go about analyzing the case?

Additional Information: (to be given to you if asked)

 Green Tree Financial is a provider of loans for home buyers.
 Green Tree Financial is charging higher interest rates than Conseco.
 Green Tree deal was much larger than Conseco’s previous deals.
 Conseco share price before the acquisition was $57.7.
 Green Tree Financial share price before the deal was $29.
 The deal was a fixed equity exchange deal where 0.9165 shares of Conseco were awarded for
every share of Green Tree Financial.
 Conseco’s market cap before the deal was $7B.
 Green Tree owned approximately 50% of the company created by the Merger & Acquisition
transaction.
 A year after Green Tree needed an additional investment of $1B.
Suggested Solution Structure:
 Identify the players attributes.
 Identify the exact deal structure.
 Identify misalignments in the deal that might cause the share price drop.
 Try to predict what will happen next and suggest course of action accordingly.
Possible Solution:
1. Problems with the deal structure:
 Misalignment in the companies business.
 The almost 1:1 stock exchange didn’t reflect the different market values of the two companies.
 Conseco’s expertise was in smaller and more rapid acquisitions and this acquisition wasn’t
something they could handle.
2. Problems with the acquisition target:
 From the last bullet in the additional data section it is obvious that Green Tree was at a difficult
situation before the acquisition and wasn’t a good target for acquisition.
 The market adjusted Conseco’s share price to reflect these misalignments.
3. What to do now (after a year)?
Investigate the financial state of Green Tree after a year (it is evident it wasn’t good). If Green Tree
continues to be in distress, I would suggest dumping it.

4. Conclusion
Green Tree continued to suffer big loses and dragged Consico with it.
In fact, Conseco (though not its subsidiary insurance companies) entered Chapter 11 reorganization in
2002 and emerged nine months later in 2003. In the process of reorganization, GreenTree was divested
and Conseco is now solely focused on the insurance industry. In 2002, Conseco was delisted from the
S&P and now it is listed in NYSE with the symbol CNO (last traded $5.37 on July 30, 2010).

Additional questions to think about: What was Conseco’s management thinking? Where was
Conseco’s board of directors?
United Airlines Considers Acquiring Tokyo-New York Route
Case Type: mergers & acquisitions.
Consulting Firm: Arthur D. Little 1st round full time job interview.
Industry Coverage: Airlines.
Case Interview Questions #00016: Your client United Airlines (NYSE: UAL) is one of the world’s largest
airlines with 48,000 employees and a fleet of 359 aircrafts. The airline’s corporate headquarter is located
in Chicago, Illinois, and its largest hub is Chicago’s O’Hare International Airport. In May 2010, United

Airlines merged with Continental Airlines  to form the world’s largest airline in
revenue passenger miles (RPMs) and second largest in fleet size and destinations after Delta Airlines.
Recently, the board of directors of United Airlines is considering acquiring an existing non-stop route from
Tokyo’s Narita International Airport to New York City’s Newark Liberty International Airport (10,854 km,
6,745 mi). You have been hired to advise the board on this potential acquisition. How can you determine
if the acquisition of Tokyo-New York City route is a good idea or not?
Suggested Framework:
Profitability analysis (Profits = Revenues – Costs) looks like the best approach for this acquisition case.
Simply determine if revenue less costs equals a positive profit. Then, analyze the factors that go into
revenue and the factors that comprise cost to come to a conclusion.

Possible Solution:
Revenues will be determined by occupancy rates and expected prices. Both of these will be determined
by expected demand, the competitive environment and the extent to which our client could win over
passengers from competitor routes.
Operating costs will depend on expected fuel costs, incremental costs for landing rights, etc. It is also very
important to estimate the cost of cannibalization on existing Tokyo-LA, LA-New York routes. And, last but
not least, it is important to note that losing passengers to cannibalization is better than losing them to
competitors.

Note: This case is different from the “American Airlines Consider New Japan-US Routes” case because it
deals with establishing new routes as opposed to acquiring existing ones in this case. You may also want
to check out solution to that case.