RAISING CONTINGENT CAPITAL: THE CASE OF CEPHALON

In early 1997, Cephalon, Inc., a biotechnology firm, purchased 2.5 million capped call options on its own stock, with a potential value of as much as $45 million, in exchange for $9.8 million worth of its common shares. Cephalon's first major drug, Myotrophin, was under review by the U.S. Food and Drug Administration, and Cephalon's management reasoned that, upon FDA approval, the company's stock would rise in value to reflect the future value of the drug, in which case the call options would pay off and the firm could use the proceeds to help fund commercialization of the drug. The managers thus viewed the call options as a form of “contingent capital,” capital that would be available only if and when the firm needed it. The availability and cost of financing constitute major uncertainties for any company and perhaps even more so for a biotech firm. But was the options transaction a cost‐effective way to raise capital? The authors' analysis suggests that the cost of the capped calls—underwriting fees, expenses, underpricing, and market impact—was quite high compared to alternative sources of financing that may have been available to Cephalon in the wake of a favorable decision by the FDA. An equally interesting aspect of this case is that the size of Cephalon's funding requirements was determined in large part by accounting rules and management's desire to report higher (non‐cash) earnings.     

Positioning a tourism destination to gain a competitive edge

Positioning is a form of market communication that plays a vital role in enhancing the attractiveness of a tourism destination. This article describes the different parts of the positioning process and applies it to the case of positioning a U.S. destination to Japanese visitors.     

Capitalizing on emerging markets

Miller, R. (1998) Selling to Newly Emerging Markets, Westport, CT: Quorum Books, 274 pages, ISBN 1 56720 044 3 Dixon, J. and Newman, D. (1998) Entering the Chinese Market: The Risks and Discounted Rewards, Westport, CT: Quorum Books, 1 56720 137 7 Bullis, D. (1998) Doing Business in Today's India, Westport, CT: Quorum Books, 320 pages, ISBN 1 56720 136 9     

The Quest for Quality Improvement: Using Six Sigma at Starwood Hotels and Resorts

In 2001, Starwood Hotels and Resorts announced that it would be the first hospitality company to embrace Six Sigma, a quality improvement program where the development and adoption of innovative customer-focused solutions were to result in improving the quality and consistency of guests' experiences and lead to enhanced financial performance. The purpose of this article is to illustrate this process improvement program and to document the application of Six Sigma within the hospitality industry. Findings indicated an increased use of cross-functional team approaches, effective use of expanded stakeholder partnerships, and the adoption of objective techniques and statistical testing to solve problems and improve the bottom line.     

Important Elements of Hotel-Meeting Planner Contracts: An Exploratory Study

Contracts between meeting planners and hotels are getting longer and more complex to protect the interests of both parties. Unlike many other industries, there is no standard contract for use between meeting planners and hotels. This study was undertaken to try to ascertain (a) what elements the literature suggests should be contained in all contracts between meeting planners and hotels, and (b) what actually appears in real life contracts. The result was development of a 9-item checklist and comparison of real contracts with this list. It was found that although the bids were for an identical event there was significant variation in the elements included in the contracts as well as the operationalization of each element. However, this study found that none of the hotels in this sample included all nine elements in their contract, which provides educators and practitioners with the opportunity to provide assistance to hotel managers. Additional discussion addresses the accepted practices exchange (APEX) development of recommendations for contract clauses. Thus, the results of the extant study make a contribution to the discipline and are of interest to academics and practitioners alike.