What YGCC is Reading #145

Mobile Data Giveaways Create Conundrums (FT)
AT&T Appeals to Cord-Cutters with DirecTV Now, a New Streaming Service (NYT)
Virgin to Test Net Neutrality Rules with Free WhatsApp Access (FT)

AT&T launched a new streaming service called “DirecTV Now,” which includes packages of 60 to over 120 channels ranging from $35 to $70 per month, respectively. This service targets those who have internet service but no cable TV subscription and thus competes directly with companies like Netflix, which delivers content over the internet. In addition, AT&T Wireless customers can stream videos on their mobile devices for free. But as a result of the recent AT&T and Time Warner merger, this new service threatens the net neutrality rules; as both a network and internet service provider, AT&T will bias internet traffic to benefit its own streaming services. Europe faces a similar challenge as Virgin Media announced last month that it will provide free access to WhatsApp to its Virgin network customers.

  • The launch of “DirecTV Now” was, in part, an effort to compensate for the declining subscription to “DirecTV.” How else can AT&T promote subscription to its TV brand if the FCC forbids free streaming?
  • Though often controversial, vertical integration like the AT&T and Time Warner merger is a common practice that confers many advantages to companies. What are some other examples of vertical integration? (check out this LBS practice case on page 46).

What YGCC is Reading #144

Johnson & Johnson Approaches Actelion About Potential Deal (WSJ)
Johnson & Johnson Has Its Eye on Actelion (NYT)
Breaking Down Resistance to a Drug Deal (Bloomberg)

Johnson & Johnson is hoping to bolster its lucrative drug portfolio by acquiring Swiss biotech firm Actelion. J&J’s top-selling autoimmune biologic Remicade produced $4.5B in sales in the US alone last year, but it is expected to lose significant market share to rivals’ biosimilars.  Actelion is best known for its blood pressure treatments as well as its orphan drugs and could significantly bolster J&J’s thin drug pipeline and current drug offerings. However, many analysts worry that the lack of overlap between the two companies may also indicate a lack of synergies between the two companies and the integration would be costly. Additionally, Acetlion is also known to be fiercely independent and would most likely entertain only an offer with a significant premium.

  • Remicade addresses inflammation-related diseases which is expected to one of the most lucrative disease markets in the near future; what other disease areas would you want to address through an acquisition (ie. acquire a firm that is developing a new diabetes treatment)?
  • Integration details and finding synergies are key questions that many management consultants address. Brainstorm ways that J&J and Actelion could find synergies between them as well as potential roadblocks that they may face (check out this McKinsey practice case as a starter).

What YGCC is Reading #143

Airbnb Moves beyond Accommodation into Tours and Immersive Trips (FT)
Airbnb and the Unstoppable Rise of the Share Economy (Forbes)
Berlin Ban on Airbnb Short-term Rentals Upheld by City Court (Guardian)

Airbnb unveiled its new service called Trips, which will provide tours and personalized experiences for travelers to become immersed in the local culture. It will launch 500 experiences in 12 cities and gradually expand to add more cities as well as new services such as making flight reservations. This expansion is a reaction to the pushback from the government worldwide; more cities are banning short-term rentals or finding ways to better enforce pre-existing laws because many governments do not have a standard tax deal with Airbnb. Most of the hosts do not pay any accommodation taxes and studies estimate that if all Airbnb bookings worldwide were fully taxed, it would generate $440 million in tax revenue this year. In addition, some cities like Berlin are struggling with a housing shortage, which is exacerbated by those who buy property exclusively for short-term rentals.

  • If you were the CEO of a travel agency, what measures would you take in anticipation of losing customers to Airbnb’s Trips?
  • The sharing economy is predicted to grow much more rapidly than the traditional rental sector between 2013 ($15 billion revenue) and 2025 ($335 billion revenue). In addition to housing accommodation (Airbnb) and cars (Uber and Lyft), what other personal assets can be monetized?

What YGCC is Reading #142

Marijuana Company Prepares to Cross State Lines, as Legally as Possible (NYT)
The First Bank of Bud (NYT)
As Marijuana Sales Grow, Start-Ups Step In for Wary Banks (NYT)

Financial analysts predict that legalization of marijuana in all 50 states will draw $30 billion in sales revenue by 2021 in the US. Growing support for marijuana materialized last Tuesday when California, Massachusetts, and Nevada joined four states and Washington D.C. to legalize its recreational use. However, growth of this industry is hindered by the fact that marijuana has different state and federal regulations. For example, entrepreneurs legally obtain licenses to operate dispensaries but have difficulty opening business bank accounts and receiving loans because banks fear prosecution from the federal government, which considers marijuana to be illegal. Business owners are forced to deal in cash and as a result, face robberies that cost them up to 10% of their revenue. In order to combat these challenges, new industries have emerged: the Iron Protection Group is a business comprised of war veterans that provide armed guard service to watch over dispensaries, and tech start-up companies such as Tokken, Hypur, and Kind Financial develop software that monitors and records transactions. Obtaining detailed information about each transaction and using a GPS to geo-locate each purchase allows banks to ensure that the transactions are legal, thus complying with the money-laundering laws.

  • What other ancillary businesses do you envision emerging to fulfill the unmet needs of the marijuana industry?
  • What other products have different state and federal regulations? How does this affect the business model?
  • This change in policy inevitably has rippling effects that reach beyond the marijuana business. Brainstorm other aspects of society that are affected (i.e. negative impact on public health and reduced arrests for illegal possession that often disproportionately target racial minorities).

What YGCC is Reading #141

Nestle Pays $145 Million for Stake in Biotech Firm Aimmune (Bloomberg)
Allergy biotech Aimmune in $145M Nestlé Health equity investment (Fierce Biotech)
Nestle, Aimmune to work on food allergy treatments (Market Watch)

The health science arm of Nestle SA plans to invest $145M into the biotech firm Aimmune Therapeutics. Nestle’s cash infusion would allow for more investment into research and clinical trials for all Aimmune’s food-allergy treatment drugs, including its lead peanut allergy drug which is currently in Phase III trials. Given that 250M people worldwide have food allergies—6M people in the US and Europe have peanut allergies—investing in allergy-fighting drugs is a strategic extension for one of the largest global food companies looking to build its health and wellness products. Nestle Health Science has also invested heavily in other biotech firms which have developed treatments ranging from improving the balance of microorganisms in the guts to devices which can ease dysphagia (difficulty swallowing).

  • If you were the head of Nestle Health Science, what other types of companies would you invest in? Also consider other consumer product companies which may benefit from a partnership with biotech companies (ie. Shiseido is working with a biotech to develop a treatment for hair loss).
  • Mini case: Check out Investopedia’s method of biotech valuation; this method is often used in cases to assess the potential revenue of a candidate drug. If Aimmune’s peanut allergy drug were to pass Phase III trials and to be priced at $500/year, what would be the potential revenue in the US and European market (this would be the first peanut allergy drug on the market)? What would Nestle’s share be if it charged a 15% royalty rate (it invested 15% in equity in the company)? Also consider what factors may decrease these revenue projections.

What YGCC is Reading #140

AT&T Reaches Deal to Buy Time Warner for $85.4 Billion (WSJ)
Individualized Ads on TV Could Be One Result of AT&T-Time Warner Merger (NYT)
AT&T-Time Warner face uphill battle in Washington (FT)

AT&T will pay $85.4B to acquire Time Warner, which owns networks like CNN, HBO, TNT, and the Warner Bros. Studio. The merger would combine AT&T’s vast mobile distribution network and consumer database with Time Warner’s deep and high-quality media portfolio, continuing the march toward individualized advertising and mobile video services. However, many expect that anti-trust regulations will delay and possibly block the deal: both Presidential candidates as well as many in Congress have derided the deal as anti-competitive. However, CEOs in media and tech have been much more demure about the mega-merger, citing that networks like Time Warner need the capital from AT&T to produce high quality content.

  • Since today’s consumers tend to favor individual shows across networks (ie. Game of Thrones on HBO, House of Cards on Netflix, American Horror Story on Fox, etc.), brainstorm ways as to how Time Warner’s competitors can respond to this merger (ie. raising capital, new partnerships, etc.)
  • AT&T has not been the most prudent of acquirers and Time Warner had previously been a part of the “worst deal in history” when it was acquired by AOL for a grossly over-estimated $160B.  Where can AT&T and Time Warner find cost-savings synergies between the two companies to justify the $85.4B price tag and escape their sordid M&A past?

What YGCC is Reading #139

McDonald’s U.S. Sales Revive Amid Stiff Competition (NYT)
McDonald’s Tweaks Its Recipes: Now, Real Butter in the McMuffin (NYT)
What’s new at McDonald’s? Possibly just about everything (Chicago Business)

Despite analysts’ lowered expectations due to stagnant growth over the past few years, McDonald’s outperformed the projected sales growth in the third quarter this year. McDonald’s is a fast food giant that serves nearly 70 million customers daily from over 100 countries. This world’s largest restaurant chain experienced steady growth throughout the past several decades, even during the Great Recession when its competitors suffered. But in 2014, McDonald’s faced a fall in quarterly sales for the first time in 17 years due to competition from other fast food chains and a consumer shift to healthier eating. As a result, Steve Easterbrook was appointed as the new CEO in 2015 to implement a turnaround plan. Easterbrook’s McComeback initiatives included heavy spending cuts by refranchising, introducing competitive items such as the all-day breakfast menu, appealing to health-conscious consumers by using healthier ingredients, and increasing efficiency by installing self-service kiosks.

  • As consumers become more health-conscious, fast food restaurants rebrand their company to better meet the demands. What other initiatives have fast food chains implemented? Alternatively, how do companies recover their growth following incidents that tarnish their brand image? For example, how are Volkswagen and Wells Fargo coping with the recent scandals?
  • McDonald’s generates two-thirds of its revenue from outside the US. How can Easterbrook cater his approaches to meet specific demands of consumers in its locations abroad (ie. McDonald’s in Asia vs. Europe vs. Africa)?

Pro-bono consulting opportunity with a Yale start-up

YGCC is excited to announce another semester long pro-bono projects and we’re now accepting applications to staff them. This is an opportunity to build your consulting experience, including the problem solving and communication skills required in a consulting career. Prior consulting experience is not required and all interested applicants are welcome to apply! If you’re interested in this opportunity, please see below for project and application details.

Project Description:
The client is a healthy frozen foods startup founded at Yale and is looking to find local food distributors to supply their products. YGCC pro-bono consulting team will be assembled to create a list of distributors and analyze this list to identify the most cost-effective distributor(s) for our client.   

Open Positions: 3 Pro-bono Project Associates.

How to apply

  • Send a 1-page resume and a brief statement of interest (<250 words) that should address both how you can contribute to the project as well as what you hope to gain from the experience. 
  • The statement should be sent as a single PDF document titled, “LastName_FirstName_Statement

Please email both the resume and the statement to yale.grad.consulting@gmail.com with the subject “Pro-bono Project Associate“.

Please submit your applications by 5:00PM, Thursday, October 20.
Selected candidates will be contacted for interview after Friday, October 21.

We look forward to your application!

What YGCC is Reading #138

De Beers Bets Big on Canadian Mine (WSJ)
Diamonds: Nothing lasts forever (FT)
The diamond industry is aiming its new ads at millennials who aren’t that into marriage (Quartz)

De Beers, the dominant supplier of rough diamonds for more than a century, is starting operations at a new $1B diamond mine, Gahcho Kué, located in the permafrost in the high north of Canada. The new mine is De Beers’ most significant bet on the long-term health of the diamond market for years — the largest new diamond mine in a decade and the company’s biggest outside its home region of Africa. Even though this mine needs some of the highest-cost extraction operations due to its remoteness, gems mined here have the advantage of being free of any taint of “blood diamonds” — stones whose profits fund conflict, an accusation associated with diamonds sourced from some countries in Africa. This investment comes at a time of upheaval and volatility for the diamond industry. Global sales of diamond jewelry fell in 2015 for the first time in six years, declining 2 per cent to $79B. Sales of rough diamonds fell 30 per cent. De Beers’ revenues fell by one-third and operating profits fell by more than half. Diamonds, which have traditionally held a strong share of luxury spending, are also facing stiff competition from newer alternatives, such as consumer devices and expensive holidays. Synthetic or lab-grown diamonds comprise another challenge to the industry; chemically identical to a mined diamond but created to order in weeks, these stones are a cheaper alternative for ethically minded consumers or an imitation that erodes trust in “real” stones.

  • Market research (FT) has revealed that millennials typically have less to spend than their parents, have a more casual approach to wearing jewelry, are getting married later, are increasingly eschewing social conventions such as engagement rings and anniversary gifts, are valuing experiences (such as attending concerts and exotic holidays) over material goods, and have been overexposed to traditional advertising messages. In light of these constraints, how would you structure a diamond-marketing approach aimed at millennials?

What YGCC is Reading #137

Here’s Why Twitter’s Share Price Is Plummeting (Forbes)
Salesforce To Acquire Twitter, Some Speculate (Fortune)
Salesforce Shareholders Besiege Possible Twitter Deal (NYT)

Twitter has had some difficulty rallying up potential buyers. Initially, tech conglomerates like Disney, Google, and Apple were thought to be fielding bids for the social media company. Given that Microsoft has just shelled out $26.2B for LinkedIn, many thought this would be déjà vu; Twitter has amassed not only a large professional network composed of prospective employees, large companies, and key opinion leaders but also a massive database on social behavior that could be invaluable for companies already involved in machine learning. However, recent reports have revealed that Salesforce is the only tech company considering an offer. Salesforce previously lost the bidding war for LinkedIn and may be looking for a secondary social network to supplement its service and cloud offerings. Salesforce has been using much of its capital this year to acquire several other tech companies, but Twitter would be its largest target at a price of $20B and some wonder if Salesforce’s shareholders would balk at such a figure.

  • Many believe that companies are shying away from Twitter because it has failed to turn a significant profit since its launch. Brainstorm potential new business models for a combined Twitter-Salesforce.
  • Consider all the potential data Twitter has acquired from its social media platform. How could it leverage such data in asking for a high price tag from other tech companies or private equity groups?