Mercury Athletic Footwear: Valuing the Opportunity

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4050 SEPTEMBER 18, 2009 TIMOTHY A. LUEHRMAN JOEL L. HEILPRIN Mercury Athletic Footwear: Valuing the Opportunity In March 2007, John Liedtke, the head of business development for Active Gear, Inc., a privately held footwear company, was contemplating an acquisition opportunity. West Coast Fashions, Inc. (WCF), a large designer and marketer of men’s and women’s branded apparel had recently announced plans for a strategic reorganization. The plan called for a divestiture of certain non-core assets and a renewed focus on WCF’s higher-end business, business-casual, and formal-wear apparel businesses. One of the divisions WCF intended to shed was Mercury Athletic, its footwear division. Liedtke knew that acquiring Mercury would…show more content…
The company’s traditional casual shoes also offered classic styling, but were aimed at a broader, more mainstream market. AGI’s casual footwear was sold by more than 5,700 North American department, specialty, and general retail stores via a network of wholesalers and independent distributors. Sales of athletic footwear were made through independent sales representatives to a limited number of sporting goods stores, pro shops, and specialty athletic footwear retailers. A small percentage of both casual and athletic shoes were sold through Active Gear’s website. By focusing on a smaller portfolio of classic products with longer lifecycles, Active Gear was able to maintain relatively simple production and supply chains. This in turn allowed the firm to avoid the worst of the industry’s cycles of inventory write-downs and missed profit opportunities. AGI’s simplified approach to brand and inventory management also contributed to its strong operating margins. Table 1 shows AGI’s Days Sales in Inventory compared to Mercury and other selected footwear producers. 1 U.S. import taxes ranged from 8.5% to 10.0% for leather footwear, and 6.0% to 20.0% for synthetic footwear. Duties in the EU averaged 7.0% to 8.0% for leather and 16.5% for synthetic footwear. 2 BRIEFCASES | HARVARD BUSINESS PUBLISHING Mercury Athletic Footwear: Valuing the Opportunity | 4050 Table 1 Casual & Athletic Shoe Companies Days
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