NORTHWESTERN UNIVERSITY

KELLOGG SCHOOL OF MANAGEMENT

WALL STREET, HEDGE FUNDS AND PRIVATE EQUITY (LBO) FUNDS

Evening Course at Jacobs Center

Spring Quarter 2006
FINC-931

Professor: David Stowell

E-mail: d-stowell@kellogg.northwestern.edu
Telephone: 847 441-0649 (home); 847-467-0291 (office)
Office: # 447 Jacobs Center

COURSE DESCRIPTION

This course focuses on the activities of private equity (LBO) funds and hedge funds, their
influence on corporate decision-making and corporate measures that are taken to counter
threats and exploit opportunities represented by these investors. Competition and
cooperation between investment banks, LBO funds and hedge funds will also be
analyzed. In addition, the course reviews innovative equity, debt and convertible
transactions, with a particular focus on hedge fund investing and hedging strategies in
relation to these securities. Three senior guest lecturers will represent the perspectives of
investment banks, hedge funds and LBO funds.

REQUIRED TEXT

No text. There will be a case packet containing required reading material and additional
material will be posted on Blackboard.

GRADING

1. Class participation (20% weighting)

Classroom comments and questions should demonstrate knowledge of the topic
being discussed and should facilitate learning for the entire class. Preparation for
and participation in case discussions is particularly important.

2. Group presentation to the class on weekly developments in the private equity and
hedge fund markets (20% weighting)

3. Group blackboard posting on a key hedge fund strategy (20% weighting)

 4. Mid-term paper focusing on Refco or Albertsons (20% weighting)

5. Final paper focusing on Nalco (20% weighting)

SUMMARY COURSE OUTLINE

Class #1 Overview of Hedge Funds

March 27

Topics: (A) Organizational Structure and Objectives

(B) Hedge Fund Activities

Readings: Hedge Funds Overview-Powerpoint Slides

Hedge Fund Investment Strategies-Powerpoint Slides
Market Masters-Bloomberg
Dont Fence in Hedge Funds-Business Week

Class #2 Overview of Private Equity (LBO) Funds

April 3

Topic: Private Equity Activities

Readings: Private Equity (LBO) Funds-Powerpoint Slides

The Great Global Buyout Bubble-The New York Times
KKR: The Sequel-Fortune

Class #3 Hedge Funds, LBO Funds and Investment Banks: Competition,

Cooperation and Impact on Corporations
April 10

Topics: (A) Hedge Funds and LBO Funds: impact on corporations and the
securities industry
(B) Sears and Kmart Merger: hedge fund ESLs role

Readings: Hedge Funds, LBO Funds and Investment Banks: Competition,

Cooperation and Impact on Corporations-Powerpoint Slides
Kmart, Sears and ESL: How a Hedge Fund Became one of the Worlds
Largest Retailers-Case Study
The New Raiders-Business Week
Class #4 Hedge Funds, LBO Funds and Investment Banks: Corporate Opportunities
and Threats
April 17 Group blackboard posting on a key hedge fund strategy due

Topics: (A) Pershing Squares relationship with McDonalds

(B) Corporate strategies to deal with investment banks, hedge funds and
LBO funds

Readings: Hamburger Hedging: Pershing Squares Investment in McDonalds-

Case Study
Behind the Rot at Refco-Bloomberg
Cerberus Among Buyers of Albertsons-Hedgeworld

Class #5 LBO Funds: Key Role in the M&A Market

April 24

Topics: (A) Overview of recent corporate M&A transactions with LBO Funds
(B) Guest lecturer from JP Morgan: David Adler, Head of Financial
Sponsor M&A Group

Readings: JP Morgan presentation (to be provided in class)

After TDC, Its a New Playbook-WSJ
LBOs Achieve Wider Acceptance as Stable Firms Become Targets-WSJ

Class #6 Alternative Investments: Private Equity, Real Assets and Absolute Return
May 1 Mid-term paper on Refco or Albertson Due

Topics: (A) Guest lecturer from Goldman Sachs: Rich Friedman, Head of
Merchant Banking Division and Principal Investments Area
(B) Analysis of alternative investments industry

Readings: Goldman Sachs presentation (to be provided in class)

The Yale Endowment

Class #7 Private Equity (LBO Fund) Activities Today

May 8

Topics: (A) Guest lecturer from Code Hennessy & Simmons: Tom Formolo,
Partner and Head of Investments Committee
(B) LBO M&A transaction

Readings: Code Hennessy & Simmons presentation (to be provided in class)

Private Equity: Recent Trends and Industry Outlook- Madison Dearborn
Partners
JP Morgan M&A- Case Study
Class #8 Investment Bank Services to LBO Funds and Hedge Funds
May 12

Topics: (A) Prime Brokerage for Hedge Funds

(B) Convertible, High Yield, Bridge Loan and Equity Underwriting for
LBO Funds
(C)M&A for LBO Funds and Hedge Funds

Readings: Shark on Shark-IDD

Riding the Hedge Fund Boom-Bloomberg
A New Evolutionary Path-Risk
Lets Make a Deal-Fortune

Class #9 Innovation on Wall Street

May 15

Topics: (A) Convertible financings

(B) Derivative transactions
(C) Share repurchase strategies

Readings: Convertibles-Powerpoint Slides

Note on Convertible Arbitrage
Equity Derivative Strategies for Corporations-Powerpoint Slides
Cephalon, Inc.-Case Study

Class #10 Global Financial Innovation and Review

May 22 Final paper on Nalco due

Topics: (A) New product development and fostering creativity

(B) Course review

Readings: Nikkei Put Warrants

CLASSROOM POLICY

Students should demonstrate respect for the professor and fellow students during the class
period by refraining from distracting behavior such as disruptive eating, using laptops to
surf the Web or check e-mail or holding side conversations.

RECOMMENDED BOOKS TO FURTHER DEVELOP UNDERSTANDING OF

TOPICS COVERED IN THIS COURSE (optional reading)

Barbarians At the Gate -- Burrough and Heyler

When Genius Failed -- Roger Lowenstein
Goldman Sachs: Culture of Success -- Endlich
Tearing Down the Walls -- Langley