Subject category:
Finance, Accounting and Control
Published in:
1997
Length: 31 pages
Data source: Generalised experience
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Abstract
SWORDs represent innovative instruments that allow a parent firm to finance a research and development venture off-balance sheet, without absorbing the enormous costs of product development. To reduce risks, Centocor Inc. in 1991 established a sponsoring company, Tocor II, by offering SWORD units to investors (stock in Tocor II and warrants attached to Centocor''s stock) with the intent to finance off-balance sheet a capital intensive R&D program. The case illustrates the structure of the SWORD transaction, describes the contracts involved in setting-up the venture, and outlines the events leading to the SWORD repurchase announcement by Centocor''s board in late 1993. Central to the case are issues of SWORD pricing, technology valuation and potential conflicts of interests between the parent and sponsoring firm.
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Abstract
SWORDs represent innovative instruments that allow a parent firm to finance a research and development venture off-balance sheet, without absorbing the enormous costs of product development. To reduce risks, Centocor Inc. in 1991 established a sponsoring company, Tocor II, by offering SWORD units to investors (stock in Tocor II and warrants attached to Centocor''s stock) with the intent to finance off-balance sheet a capital intensive R&D program. The case illustrates the structure of the SWORD transaction, describes the contracts involved in setting-up the venture, and outlines the events leading to the SWORD repurchase announcement by Centocor''s board in late 1993. Central to the case are issues of SWORD pricing, technology valuation and potential conflicts of interests between the parent and sponsoring firm.
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