Interpretation of Interco’s Financial Performance
Interpret Interco’s financial performance.
Why is Interco the target of a hostile takeover?
What are your interpretations of the Board of Directors in case Exhibit 1?
As a member of Interco’s board are you persuaded by the premiums paid in case Exhibit 10 or the comparable transactions analysis in case Exhibit 11? Why?
Apr. 27 Interco (C) continued:
Compute the estimated value of Interco based on instructions in Exhibit 34. Use the 1988 sales data in Exhibits 8 as the foundation for the sales forecast. And use the terminal multipliers in Exhibit 12 for estimating the value of Interco. See instructions in Exhibit 34, WEB.
Wasserstein, Perella & Co. established a valuation range of $68-$80 per share for Interco. Show that this valuation range is based on the assumptions presented in case Exhibit 12. Are the assumptions realistic?
What is your advice to the Interco Board concerning the $70 per share offer?
HBS Case Study : Interco 9-291-033
Started out as shoe company – been around a long time
•Business has spread to other consumer products / services through acquisitions
•Fairly conservative financially, debt level is relatively low
Interco has moved away from apparel and general retail (went from 59% to 40% of total sales)•
Placed more emphasis on the footwear division. (acquired Converse in 1986)•
Placed much more emphasis on the furniture division (sales rose from 20-33% of Interco’s total sales)
Current Scenario •Cheap imports hurting profitability of U.S. apparel manufacturers
•Retailing industry profits reduced due to drop-off in consumer spending and deep discounting programs being offered by retailers in 1987
•Furniture and home furnishings prospects appear bright given favorable demographic trends in family formations (success of firms like Home Depot proved this ex post!)
•October 1987 stock market crash still in rear-view mirror
Operations
Currently has four major divisions
1. Apparel (e.g., London Fog)
2. General retail merchandising
Why is Interco the target of a hostile takeover?
What are your interpretations of the Board of Directors in case Exhibit 1?
As a member of Interco’s board are you persuaded by the premiums paid in case Exhibit 10 or the comparable transactions analysis in case Exhibit 11? Why?
Apr. 27 Interco (C) continued:
Compute the estimated value of Interco based on instructions in Exhibit 34. Use the 1988 sales data in Exhibits 8 as the foundation for the sales forecast. And use the terminal multipliers in Exhibit 12 for estimating the value of Interco. See instructions in Exhibit 34, WEB.
Wasserstein, Perella & Co. established a valuation range of $68-$80 per share for Interco. Show that this valuation range is based on the assumptions presented in case Exhibit 12. Are the assumptions realistic?
What is your advice to the Interco Board concerning the $70 per share offer?
HBS Case Study : Interco 9-291-033
Started out as shoe company – been around a long time
•Business has spread to other consumer products / services through acquisitions
•Fairly conservative financially, debt level is relatively low
Interco has moved away from apparel and general retail (went from 59% to 40% of total sales)•
Placed more emphasis on the footwear division. (acquired Converse in 1986)•
Placed much more emphasis on the furniture division (sales rose from 20-33% of Interco’s total sales)
Current Scenario •Cheap imports hurting profitability of U.S. apparel manufacturers
•Retailing industry profits reduced due to drop-off in consumer spending and deep discounting programs being offered by retailers in 1987
•Furniture and home furnishings prospects appear bright given favorable demographic trends in family formations (success of firms like Home Depot proved this ex post!)
•October 1987 stock market crash still in rear-view mirror
Operations
Currently has four major divisions
1. Apparel (e.g., London Fog)
2. General retail merchandising