Interpretation of Interco’s Financial Performance

Better Essays
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
…show more content…
Because of this “undervaluation,” Interco’s management afraid may be a takeover target.
Action taken by Interco
Following 1987 crash, Interco’s board authorized repurchase of 5 million shares (by end of fiscal 1988 over 4 million shares had been repurchased – over 10% of the equity)
7/15/88 Interco announces reorganization plan
–sell the apparel division that is dragging down rest of company
–take the money raised from this sale and return it to shareholders (via special dividend or repurchase)
Raise of new problem
Rales Brothers: they buy undervalued companies with strong brand-names
City Capital (formed by Rales) has Interco in it sights
Thinks currently that the sum of Interco’s parts exceeds Interco’s current stock price
Plans to sell apparel division and also sell part of footwear division, focus on home furnishing
Offer for takeover
City Capital has accumulated 8.7% of Interco’s stock
Ups the ante on 7/27/88: City Capital proposes a merger/takeover of Interco and offers to buy Interco’s stock for $64 per share (price was $44.75 on 6/30/88)
Morning of 8/8/88:Offer raised to $70 per share
Offer is timed well – Interco happens to have a Board meeting scheduled for 8/8/88.
Board wants their financial advisor,
Get Access