International Corporate Finance: Value Creation with Currency Derivatives in Global Capital Markets, + Website

CASE STUDY 15.1

Euclides Engineering, Ltd.

This case study accompanies Chapter 15 of International Corporate Finance.

The submission of a bid to the Mexican government's agency in charge of the rural telephony project had been most disappointing. In early March 2009, Sam Finkel, manager of finance for the Telecommunication Systems Division at Euclides Engineering, was notified that Euclides had been underbid in Mexico to the tune of $13 million by the Swedish conglomerate LM Ericsson.

Euclides had entered the bidding contest for the installation of five cell towers for mobile telephone systems near Monterey, Mexico's second-largest industrial center. The bid submitted in March 2009 was in the amount of $67 million, to be paid in three equal installments on December 31, 2009, December 31, 2010, and December 31, 2011, with installation to be completed in the last six months of 2010.

Attached with the reply from the Mexican government was a photocopy of two bids, which were virtually identical from the standpoint of technical specifications but varied in terms of payment:

1. LM Ericsson: equivalent of $54 million (denominated in Swedish krone (SEK) at the rate of SEK 9.10 = US$1). Same payment schedule as Euclides, but in three equal installments to be paid in Swedish krone.
2. Euclides Engineering: $67 million.

A second round of bidding was to be held on March 15, with the winner to be announced on April 1. Sam Finkel was concerned that a strong dollar had just about closed his export ...