Anton Emmanuel's Blog

I’ve always been interested in finance. And I guess you can say having watched Michael Douglas spin off Gordon Gekko in Wall Street 4278232922335651248468 times may have augmented that interest. When I arrived at Sauder, I joined a group of first-year students and we signed up for the National Investment Banking Competition (NIBC). As I skimmed through the case however, I quickly felt way in over my head. The entire document was inundated with seemingly complex financial models, and plenty of acronyms: DCF, WACC, CAPEX, EBIDTA — all of which looked completely foreign.

Investopedia helped to a certain extent. But it was the first finance-related class of COMM101 that really crystallized what the underlying principle of finance was. In essence, it can be reduced down to the simple concept of Present Value.

I came to understand that the foreign looking models in our NIBC case simply contained an amalgamation of financial, economical, and sociological metrics in the form of a discount rate. A rate that was derived from blended assumptions of a business’s future cash flows. In turn, this metric was being used to evaluate the business’s Net Present Value.

Recently, as I was flipping through news articles, a particular post piqued my attention. Suncor was making a hostile bid for Canadian Oil Sands (COS). To summarize, a hostile bid is one in which Company A circumvents the board of Company B and proposes a purchase agreement directly to the shareholders of Company B.

I felt this article adequately illustrates the significant role valuation plays in the business world. While Suncor maintains the offer they presented COS was fair value, COS argues that it grossly undervalues their business. So who’s right? The answer is relative to perceived present value. Suncor claims certain COS assets are under-performing and therefore do not warrant such a hefty price tag. In addition, citing the recent rout in oil prices, Suncor contends that certain COS assets are encumbered by high operating costs are not as valuable. They further claiming that although once viable, specific COS production sites now face danger of operating below break-even figures. Naturally, COS executives roared back stating that Suncor is exploiting the current status of the oil price, and has advised shareholders to swiftly reject the offer.

Still, I’m having a difficult time discerning who’s right. Is Suncor’s offer just the result of astute bankers skillfully taking advantage of COS’s weak balance sheet and uncertain financial position? Or does the offer accurately reflect COS’s value? What I do know, however, is that the world of M&A seems exciting, and I can definitely see myself within the scope of investment banking sometime in the future.

For now at least, it definitely looks like my specialization at Sauder is going to be Finance.

Information was sourced from this article.