Week 2 Case assignment:

Consider the case of Biovail, the case in question for this Assignment.

Biovail is suing hedge fund SAC Capital and independent research firm Gradient Analytics for manipulating its stock price downward. Is this suit justified? What is the role of short sellers in the economy? In real-world markets, there are many impediments to short selling and to bringing out negative information. These constraints affect prices and overall market efficiency.

To complete this Case 1 Assignment, you will review the Selling Biovail Short case from the Harvard Business Publishing website to analyze the case further.

Case Study

• Baker, M. P., Lombardi, C. J., &Sesia, A. (2006). Case study: Selling Biovail short (HBS Case Study No. 9-207-071). Retrieved from Harvard Business Publishing https://cb.hbsp.harvard.edu/cbmp/access/37227892

Access the Coursepack from the Harvard Business Publishing website to download the cases for this course. For this week, you will review and focus on Selling Biovail Short (HBS Case No. 9-207-071).

Activity

For this activity:

• Access the Coursepack from the Harvard Business Publishing website found in this week's Learning Materials.
• In the Coursepack, you have access to all of the case studies for this course. You will need to purchase and download all of these case studies. Make sure you download and save your case studies in a reliable location on your computer for ease of use and access.
• Once you make your purchase and download, review the Selling Biovail Short case study HBS Case 9-207-07 for this week's Assignment.

Instructions

To complete this Assignment:

• Write a short report (not more than 5 pages, double-spaced), developed around the following questions:
  1. Evaluate Melnyk's strategy. What are the objectives? What would you do if you were in his situation, prior to the lawsuit?
  2. How do investors gather information about companies like Biovail? What are the sources? How does this information get into stock prices?
  3. What are the allegations? How should SAC respond in this situation? Should they change their investment strategy going forward? How should Gradient Analytics respond? Should they change their approach in the future?
  4. Imagine you have a firm conviction that Biovail is 10% overvalued today, i.e., the present value of their future equity cash flows is less than the firm's market value. Would you take a short position in the stock? Why?
  5. What are the implications of short sales constraints for stock prices?