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Happy Monday, future bankers!

Hope everyone is doing well and has had a great start to their week! Today we’re going over preferred stock’s role in enterprise value calculations, how to talk about current trends in the industry, and the FTC’s plan to block a $25 billion M&A deal.

🚀 Let’s get into it.

🔢 Technical Question

“Why do you have to add Preferred Stock to get to Enterprise Value?”

Enterprise Value (EV) is a measure of a company’s total value, often used as a more comprehensive alternative to equity market capitalization. EV includes in its calculation the market capitalization of a company but also short-term and long-term debt as well as any cash on the company’s balance sheet.

Preferred stock is a type of equity that carries properties of both debt and equity. It is considered more senior to common equity but more junior to debt in the capital structure. Preferred stockholders have a higher claim on assets and earnings than common stockholders. These shares often pay a dividend as well, which may be fixed or floating, and receive their dividends before common shareholders.

In the context of calculating Enterprise Value, Preferred Stock is added because it represents another claim on the company’s assets that is senior to common equity. If the company were to be sold, the preferred stockholders, like debt holders, would need to be paid off before the common equity holders. Therefore, just like debt, it is a financing option that the company has chosen, and it needs to be included in the total value of the firm.

So, in summary, you add Preferred Stock to get to Enterprise Value because it represents a claim on the company’s assets that is senior to common equity. It’s a form of financing that the company has taken on, and it needs to be accounted for in the total value of the firm. This is why it is added in the calculation of Enterprise Value.

🗣 Behavioral Question

"What are some current trends or challenges in the investment banking industry?"

This question is testing your industry knowledge, your interest in investment banking, and your ability to communicate effectively. To answer this question well, you should follow these best practices:

• Do your research: Stay updated on the latest news, reports, and developments in the investment banking industry. You can use reliable sources such as The Wall Street Journal, Bloomberg, Financial Times, etc. to find relevant information. You should also research the specific firm you are interviewing with and their recent deals, performance, and strategy.

• Choose a relevant topic: Pick a trend or challenge that is current, significant, and related to the role and the firm you are applying to. For example, you could talk about the impact of the COVID-19 pandemic, the rise of fintech and digital banking, the increasing regulation and compliance, the growing demand for ESG and sustainability, etc. Avoid topics that are outdated, trivial, or irrelevant.

• Explain the topic clearly: Provide a brief overview of the trend or challenge you have chosen, using facts and figures to support your points. Explain what it means for the investment banking industry, how it affects the clients, the competitors, and the regulators. You should also mention the opportunities and risks that arise from the trend or challenge, and how the industry can adapt or respond to it.

• Relate the topic to yourself: Show how your interest, skills, and experiences relate to the trend or challenge you have discussed. Explain why you find it fascinating, challenging, or rewarding. You can also mention how you have learned about it, how you have applied it, or how you plan to pursue it further. This will demonstrate your passion, curiosity, and fit for the role and the firm.

🗞 Industry News

FTC Looks to Block $25 Billion Merger 🛒

The Federal Trade Commission (FTC) has thrown a wrench into the proposed merger of grocery giants Kroger and Albertsons. The FTC believes this deal would lessen competition and likely lead to higher prices for consumers. Kroger and Albertsons, however, insist the merger is necessary to stay competitive with big-box retailers like Walmart and Amazon, and plan to challenge the FTC's decision.

The FTC's concerns have been echoed by several states, which have joined the lawsuit. While the White House hasn't directly weighed in, the Biden administration has expressed a general preference for competitive markets. Labor unions are also watching closely, concerned about potential impacts on grocery workers' jobs and conditions. Kroger and Albertsons aren't backing down, signaling a potentially lengthy legal battle ahead.

Read more about this story below.

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Thanks for tuning in today! Best of luck to everyone working through recruiting right now. If you sign an offer, reply to this email and let us know about it! Like seriously, do it—we’d love to hear about it!