| Deals: The Economic Structure of Transactions and Contracting L6107, Spring 2009 Professors Avery W. Katz and Ronald Mann |
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Assignment for the fourteenth week of class.
Logistics of papers and comments: The first draft of the group paper for Group 5 is due on Tuesday the 21st; Group 1's comments on this paper are due by Tuesday the 28th. Comments on papers 4 (from group 3) are due on Tuesday the 21st.
On Tuesday, April 21, we will discuss our final deal, on the IAC World Headquarters construction contracts. Your colleagues in Group 5 have assigned the following reading materials, located on the courseweb. The first PDF file contains short articles; the second on contains longer, in-depth pieces.
On Wednesday, April 22, from 9:10-10:40 am, we'll be joined by Lauren Leichtman (CLS, LL.M. 1982) and Arthur Levine (CLS, J.D. 1982) of Levine Leichtman Capital Partners, to discuss the Cici's Pizza MBO we began a few weeks back. Please note the special meeting time; please also note that our guests have told us they are planning a 20-minute presentation and then will open things up for class discussion; so if you have primary or secondary responsibility for the deal, please come prepared with questions. We will have the class recorded for those who cannot make the special meeting time.
On Thursday, April 23, we'll continue our discussion of the IAC World Headquarters deal, and will be joined by Robert Rubin and Sarah Biser of McCarter & English, LLP . Remember that Group 1 has secondary responsibility to prepare questions for our visitors and to participate in the discussion.
Assignment for the thirteenth week of class.
Logistics of papers and comments: The first draft of the group paper for Group 4 is due on Tuesday the 14th; Group 3's comments on this paper are due by Tuesday the 21st. Comments on papers 3 (from group 2) are due on Tuesday the 14th.
On Tuesday, April 14, we will discuss our fourth deal, on the Acme LBO. Your colleagues in Group 4 have assigned the following reading materials, located on the courseweb. They recommend that you skim the agreements and the Anatomy of the LBO article, and read everything else in full (the ones to skim are the at the end).
On Thursday, April 9, we'll continue our discussion of the Acme LBO, and will be joined by Thomas J. McCaffrey of Haynes and Boone, LLP. Remember that Group 3 has secondary responsibility to prepare questions for our visitor and to participate in the discussion.
Assignment for the twelfth week of class.
Logistics of papers and comments: The first draft of the group paper for Group 3 is due on Tuesday the 7th; Group 2's comments on this paper are due by Tuesday the 14th. Comments on papers 1 and 2 (from groups 5 and 4 respectively) are due on Tuesday the 7th..
On Tuesday, April 7, we will discuss our third deal, on the MPEG patent pool. Your colleagues in Group 3 have assigned the following reading materials, located on the courseweb.
On Thursday, April 9, we'll continue our discussion of the MPEG patent pool, and will be joined by Paul Bawel of Microsoft. Remember that Group 2 has secondary responsibility to prepare questions for our visitor and to participate in the discussion.
Assignment for the eleventh week of class. Remember that the first draft of the group paper for both Groups 1 and 2 is due on Tuesday the 31st; it should be e-mailed to both professors and to Nick Harley. Comments on both papers [Group 5 owes comments on Group 1's paper, Group 4 owes comments on Group 2's paper] are due by Tuesday, April 7. Comments should be sent to Nick Harley, who will forward them to the authors.
On Tuesday, March 31, we will begin discussing our second deal, on the management-led buyout of
the Cici's Pizza franchising company. Your colleagues in Group 1 have selected some materials for you to read before class; these are located in the Group 2 folder on the courseweb.In addition, Group 2 recommends the following as supplemental background the following supplemental articles, all available online.
- About Cici's Pizza
- The Structure of a Venture Capital Investment, from Allbusiness.com
- Mark Wahrenburg, Financial Contracting with Adverse Selection and Moral Hazard
On Thursday, April 2, class will not meet. We'll make up this session in a special class from 9:10- 10:30 am, Wednesday, April 29, in our usual classroom, when we will be joined by Lauren Leichtman (CLS, LL.M. 1982) and Arthur Levine (CLS, J.D. 1982) of Levine Leichtman Capital Partners.
Assignment for the tenth week of class. As announced in class, the third memo assignment is being offered on an optional basis. If you turn in all three assignments, we will drop your lowest score when computing final grades; and if all three assignments receive the same high score, this will count in your favor as extra credit if your grade is on the margin. It is due, via e-mail to Nick Harley, by 5 pm on Monday, March 23.
On Tuesday, March 24, we will begin discussing our first major deal, on the topic of "Alt-A" securitizations, which involve pools of mortgage loans that are riskier than conventional GSE-backed mortgage loans (i.e., "A-paper" or "prime" loans), but less risky than "subprime" loans (the riskiest category). Your colleagues in Group 1 have selected some materials for you to read before class; these are located in the Group 1 folder on the courseweb.
In addition, Group 1 recommends that you read as general background the following short news articles, all available online.
- Fannie Mae Eases Credit To Aid Mortgage Lending, New York Times, September 30, 1999.
- Map of Misery, The Economist, May 8, 2008.
- The Next Mortgage Crisis? , ABCNews.com, Aug. 8, 2008.
- Subprime and Alt-A: The End of One Crisis and the Beginning of Another, Calculated Risk Finance and Economics Blog, August 12, 2008.
- Move Over, Subprime, The Economist, Feb 5, 2009.
On Thursday, March 26, we'll continue our discussion of the of "Alt-A" securitization deal, and will be joined by Keith Krasney (CLS, 84) of McKee Nelson, LLP. Remember that Group 5 has secondary responsibility to prepare questions for our visitor and to participate in the discussion. Group 5 is also responsible for providing comments on Group 1's draft paper, but due to the logistical difficulties of group work during spring break, that draft will not be made available until the week after the deal is discussed in class.
Assignment for the ninth week of class.
On Tuesday, March 10, we'll discuss third-party guarantees. You should read the excerpts from Katz's Chicago L. Rev. article, Wallison & Ely's monograph on Fannie Mae and Freddie Mac, and the blog entry by Woodward and Hall. For class discussion, you should also read a short but very timely article that appeared in the New York Times on February 26, entitled Big U.S. Role in Lending to Students, This article discusses the Obama administration's plans to stop guaranteeing student loans made by private lenders, and instead to increase direct government lending to students.
On Thursday, March 12, we'll discuss other mechanisms for supporting contractual exchange, including third-party verification that does not use guaranties. You should read the excerpt from Mann's Georgetown L. Rev article as general background, and then read Goldberg's Framing Contract Law, and Mnookin et al.'s Beyond Winning with an eye toward discussing how liquidated damages and lawyer-negotiators can help overcome informational and bargaining problems.
Assignment for the eighth week of class.
On Tuesday, March 3 , we will continue our discussion of the option perspective, focusing on a one-page excerpt from the NBC/Paramount Studios contract that governed the 2001 renewal negotiations for the Frasier television show, and then on the buy-sell problem assigned for last week. In the later part of class, we will discuss the structure of securitization transactions; for that you should read the Schwarcz article and the excerpt from the Hill article.
On Thursday, March 5, after completing leftover material, we will turn to the topic of third-party guarantees. You should read the excerpts from Katz's Chicago L. Rev. article, Wallison & Ely's monograph on Fannie Mae and Freddie Mac, and the blog entry by Woodward and Hall. For class discussion, you should also read a short but very timely article that appeared in the New York Times on February 26, entitled Big U.S. Role in Lending to Students, This article discusses the Obama administration's plans to stop guaranteeing student loans made by private lenders, and instead to increase direct government lending to students.
Assignment for the seventh week of class. Please note the following administrative matters:
- Your second memo assignment is now available. It is due, via e-mail to the TA, Nick Harley, by 5 pm on Friday, February 27. Please read and follow the administrative instructions provided with the assignment.
- The third volume of the coursepack, containing readings for weeks 7 through 9 of the course, is now available, and can also be purchased in hard copy beginning Monday at Printing Services.
On Tuesday, February 24, we will discuss the article by Gilson, Sabel, and Scott originally assigned for last Thursday. Please recall that we are dividing discussion responsibility for the various parts of the article among the class. Students seated in the north section of the classroom should focus on the Deere-Stanadyne contract discussed in section III.A; the students seated in the south section of the classroom should focus on the Apple-SCI Manufacturing contract discussed in section III.B; and the students seated in the middle section of the classroom should focus on the Warner-Lambert - Ligand contract discussed in section III.C.
Each group should consider (a) the information or behavior that cannot be reliably predicted at the time of the contract; (b) how the buyer can get sufficiently comfortable with the arrangement to be motivated to invest appropriately; (c) how the seller is protected against buyer holdup during performance.On Thursday, February 26, we will discuss the role of options in contractual design. You should read the excerpts from Gilson and Black's finance text, and from Katz's Virginia Law Review article. Do not be concerned about mastering the mathematical presentation in Gilson and Black, though you should try to get what you can out of it; essential ideas will be clarified in lecture.
For the discussion portion of class, please be prepared to discuss the buy-sell problem available online; we will also have hard copies available ahead of time.
Assignment for the sixth week of class. The group assignments handed out last week in class are now available online.
On Tuesday, February 17, we will spend the first half of class on the hotel management agreement we started discussing last week. In the second half of class, we will begin discusssing the strategic problems of negotiation and bargaining. You should read pp. 53-54 and 65-68 in Kaplow & Shavell, and then the excerpt from Mnookin, Peppet, and Tulumello's Beyond Winning. At the end of class we will hand out a sample bargaining problem that we will discuss in the next session.
On Thursday, February 19, we will start with the bargining problem distributed in the previous class. In the second part of class we will turn to the article by Gilson, Sabel, and Scott. You may skip section 1 of the article; we'll discuss the three case studies discussed in sections 3 and 4. We are asking each class member to focus on one of the three deals in particular. Specifically, the students seated in the north section of the classroom should focus on the Deere-Stanadyne contract discussed in section III.A; the students seated in the south section of the classroom should focus on the Apple-SCI Manufacturing contract discussed in section III.B; and the students seated in the middle section of the classroom should focus on the Warner-Lambert - Ligand contract discussed in section III.C.
Each group should consider (a) the information or behavior that cannot be reliably predicted at the time of the contract; (b) how the buyer can get sufficiently comfortable with the arrangement to be motivated to invest appropriately; (c) how the seller is protected against buyer holdup during performance.
Assignment for the fifth week of class.
On Tuesday, February 10, we will complete our discussion of relational contracts and bonding. You should read all the materials listed under that section of the reading list, including the short excerpts from Leff and Milgrom/Roberts. We'll focus in class discussion on the McDonald's business plan as outlined in the Kaufman/Lafontaine article.
On Thursday, February 12, we will review the concepts we've developed over the last few weeks using a case study that presents a proposed hotel management agreement which will also be handed out in hard copy in Tuesday's class.] Please read the two very short selections from Kaplow/Shavell and Milgrom/Roberts, and then read the management agreement in detail; you will be expected to be familiar with its provisions.
Assignment for the fourth week of class. Your first memo assignment is now available. It is due, via e-mail to the TA, Nick Harley, by 5 pm on Friday, February 6. Please read and follow the administrative instructions provided with the assignment.
On Tuesday, February 3, we will complete our discussion of moral hazard, focusing on specific provisions of the insurance contract appearing in Appendix 7 of the Kaplow/Shavell book. Then, we will turn to the topic of adverse selection. Please read the short excepts by Kaplow/Shavell, Akerlof, and Goldberg, and then look over the earnest money agreement handed out in class. We'll spend our discussion time on this agreement. [The Thaler article, which explains how adverse selection plays out in the important setting of competitive bidding, has been demoted to optional reading.]
On Thursday, February 5, after completing leftover material, we will discuss the importance of relational investments (that is, reliance investments that are specific to the transactional relationship so that their value will be lost if the relationship ends.) The topic leads naturally to issues of bonding, repeated dealing, and reputation, so we will not finish discussing it until the following week. For this class session, you should read the first three excerpts listed on the syllabus, by Williamson, Goldberg, and Kaufmann and Lafontaine. In the last part of class, we'll discuss the McDonald's business plan -- the topic of the Kaufman/Lafontaine article.
Assignment for the third week of class.
On Tuesday, January 27, we will discuss the property rights readings originallly assigned for last week. Do not bother with the second Salop problem, but you should look over the shopping center lease contract that appears in Appendix 2 of the Kaplow/Shavell book. As you do, consider which terms are designed to address externalities [i.e., spillover effects] that may arise between the specific tenant and other stores in the shopping center.
On Thursday, January 29, we will discuss the problem of moral hazard, which arises when a contracting party cannot fully observe its counterparty's behavior in performing under the contract (and so cannot condition contractual rewards or punishments on such behavior). The readings are short [35 pages in total] and you are responsible for them all.
Assignment for the second week of class.
On Tuesday, January 20, we will complete our discussion of the sharecropping problem; in preparation for class, you should review Salop's problems 3 through 7. In the second part of class, we will begin discussing the role of organizational design in transactional planning. You should read the brief excerpt from Berle and Means, and the longer excerpt from Gilson's Stanford Law Review article on venture capital. You do not need to read Gilson's testimony on Visa and MasterCard for today, as we will not get to this material until Thursday's class.
On Thursday, January 22, we will discuss the Visa and MasterCard cooperative form of organization, considering why it might be more efficient than the usual corporate form. In the second part of the class, we will begin discussing the transactional role of property rights more generally. You should read the short excerpt from Cooter's "The Cost of Coase," the excerpt from Dixit and Nalebuff's Thinking Strategically, and Heller and Eisenberg's four-page article from Science magazine. The excerpt from Coase's classic article is optional background, provided for those who have never read it and are curious. The Dixit/Nalebuff chapter is longer than the other assignments, but very readable; it is written for a general audience, not a professional one. There's no need to read the second Salop problem at this point; we may discuss it the following week, or we may skip it, depending on the time available.
Assignment for the first week of class.
Welcome to Deals for Spring 2009! There is a substantial wait list for the course, but based on past experience, we expect that many of you on the wait list will eventually be able to register. To ensure that those with the strongest interest in the class are able to enroll, you must attend the first two class meetings in person in order to retain your registration priority. If you are currently registered for the class, but cannot attend the first two meetings due to extenuating circumstances, please let us know so that you are not dropped from the roster.The required texts are Louis Kaplow and Steven Shavell, Contracting (West Publishing, 2004), available for purchase at Book Culture or the Columbia University bookstore, and a coursepack of readings, which will be made available on a weekly basis on the online CLS courseweb (you will need your network ID and password to access it from the law school server). You can also buy a hard copy of these readings at University Printing Services, Room 401 International Affairs.
- For the first class meeting on Tuesday, January 14, please read pp. 1-12 in the Kaplow/Shavell text as general background.
- For Thursday, January 16, please read Steven Salop, The Farmer and the Landlord; and Steven N. S. Cheung, Transaction Costs, Risk Aversion, and the Choice of Contractual Arrangements. The Cheung reading is for background; the Salop problems will form the basis of class discussion.