Usec Case

For exclusive use at University of Pennsylvania, 2015

UV1051

Nov. 5, 2008

USEC INC.

When the loudspeaker in Concourse A of the Richmond International Airport announced

that his 4:00 p.m. flight to Boston was delayed until 7:00 p.m., Ben Mackovjak realized that his

hope of seeing any of the 7:00 p.m. Red Sox game at Fenway Park was gone. Mackovjak worked

as an analyst for Rivanna Capital (Rivanna), a long/short equity hedge fund based in

Charlottesville, Virginia that focused on publicly traded small and midcap companies. As a

hedge fund company, Rivanna followed a simple investment rule to buy stocks (a long position)

that were undervalued by 10% or more and short sell stocks (a short position) that were

overvalued by 15% or more. Since its inception a few years earlier, Rivanna’s investors had

become accustomed to earning superior risk-adjusted returns. The key to Rivanna’s success up to

now had been to conduct careful analyses of the fundamental value drivers of companies to

identify the right stocks for a portfolio.

Mackovjak had been offered the analyst position for the summer of 2006, after

completing his first year of the MBA program at the University of Virginia’s Darden School. If

the Rivanna partners were pleased with his work, Mackovjak could receive a permanent offer

that would be effective immediately after his graduation the following May. It was now July, and

Mackovjak had participated in the analysis of many interesting companies; however, none had

been as interesting as USEC Inc., and none was more important to his aspiration of securing a

permanent job offer from Rivanna. USEC was the first company for which Mackovjak had the

responsibility of recommending the stock as either short or long to the senior partners. With only

one more month before classes started, it was unlikely that he would have another such

opportunity to display his capabilities.

Mackovjak had been pouring over USEC’s financials, listening to past conference calls

with equity...