Interco Case Study
Interco | | | | | | | |
Formerly a footwear manufacturing company, Interco developed into a diversified company that comprised subsidiary corporations in four major business areas: apparel manufacturing, general retail merchandising, footwear manufacturing and retailing, and furniture and home furnishings. Due to the fact that Interco 's subsidiaries operated as autonomous units and lacked integration between its operating divisions, the company is particularly vulnerable to a highly leveraged takeover, as far as the management concerned.
The strategic repositioning program starting in 1984 resulted in a reversal of the sales mix of Interco, with sum of footwear and furniture groups’ sales surpassing that of apparel and general retailing divisions in 1988. The financial performance of Interco in FY 1988 was solid as a whole. Both the outstanding performance of furniture & home furnishings and footwear groups as well as a reduction of the company’s effective tax rate made great contributions to it. Besides, Interco’s relatively high current ratio and low debt level show that the company is flexible, which also indicates healthy financial performance. However, ongoing problems remained in the apparel manufacturing and general retailing divisions as a result of the change in their business nature. As a matter of fact, it was believed that the apparel group’s performance would lead to continuous weakening of Interco’s overall operations and an undervaluation of the company’s common stock by the market.
Given Interco’s organizing structure and financial performance at that time, it was unsurprising that the company was offered a merger proposition in July, 1988 by City Capital, a company that acquired undervalued targets with strong market niches.
When evaluating the takeover bid offered by City Capital Associates, the board of Interco was advised by Wasserstein Perella and Co. (WPC). Based on Wasserstein Perella’s comparable
Formerly a footwear manufacturing company, Interco developed into a diversified company that comprised subsidiary corporations in four major business areas: apparel manufacturing, general retail merchandising, footwear manufacturing and retailing, and furniture and home furnishings. Due to the fact that Interco 's subsidiaries operated as autonomous units and lacked integration between its operating divisions, the company is particularly vulnerable to a highly leveraged takeover, as far as the management concerned.
The strategic repositioning program starting in 1984 resulted in a reversal of the sales mix of Interco, with sum of footwear and furniture groups’ sales surpassing that of apparel and general retailing divisions in 1988. The financial performance of Interco in FY 1988 was solid as a whole. Both the outstanding performance of furniture & home furnishings and footwear groups as well as a reduction of the company’s effective tax rate made great contributions to it. Besides, Interco’s relatively high current ratio and low debt level show that the company is flexible, which also indicates healthy financial performance. However, ongoing problems remained in the apparel manufacturing and general retailing divisions as a result of the change in their business nature. As a matter of fact, it was believed that the apparel group’s performance would lead to continuous weakening of Interco’s overall operations and an undervaluation of the company’s common stock by the market.
Given Interco’s organizing structure and financial performance at that time, it was unsurprising that the company was offered a merger proposition in July, 1988 by City Capital, a company that acquired undervalued targets with strong market niches.
When evaluating the takeover bid offered by City Capital Associates, the board of Interco was advised by Wasserstein Perella and Co. (WPC). Based on Wasserstein Perella’s comparable