Interco Case Study

3808 Words Oct 17th, 2010 16 Pages
Grade 9,0
Corporate Finance II

Interco
Advanced Valuation

Comments from teacher: In question 1, why do we use these equitation’s, explain and show then, i.e. ROE can go up with more leverage. More on comparables. In Q1 assumptions explained, that are then used in DCF. Max for question 1 and 2, two pages. Must power to put in Q3. Deduct tax in table 3. In DCF, show more how calculated and assumption missing about other income and corporate expenses. Table 6 to be fixed (already been done). Skip in DCF advantage and disadvantage. Do table 4 different, use Exhibit 11, value range, use median value and calculate enterprise value with multiples en deduct net debt 318,5 and get equity value. Explain better in main text footnote 12. . Use
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Why is the company a target of a hostile takeover attempt? The market price of Interco’s stock took a dive in the market crash in October 1987. The market condition and market participants’ perception could have depressed the stock price making the company vulnerable for takeover. In addition, Interco’s repurchasing strategy reduced outstanding shares making it easier to achieve more voting rights. Interco had shown overall consistent growth and history of recurring cash flows, despite the two underperforming groups not contributing to overall profitability. The strong financials of the company, even with the two underperforming units, sends a signal to the market that Interco could be undervalued. Thus, making Interco a viable target for a takeover and restructuring workout. Acquirer could see opportunities to improve financial performance by replacing current management and thereby eliminating agency cost, lack of operational monitoring and empire building, caused by managers also being board members. Perception could be that a break-up value of Interco is higher than the company value in current state. Higher value would be achieved through disposal of selected units as they could be worth more to a strategic acquirer, achieving synergies. In result the acquirer could focus on more profitable units which would yield higher profit margins. Interco’s conservative capital structure, low debt and high equity, could attract hostile acquirers taking

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