Interco Solution

Name:Yuhan XIE

NetID:yuhanx2

Interco Case Study

1. Interco performed positively in fiscal year 1988 , with sales and net income increasing 13.4% and 15.4%. However, according to Interco’s business segment Exhibit 8, the operating earnings of Apparel and General retail were continuously going down in recent 3 years. These two industry are under slow growth forecast and will spend more on sales expenses. Thus, share holder’s confidence to Interco were affected negatively. For hostile takeover, this was a great chance on which circumstance Interco’s stocks were underestimated.

2. Yes, the historical data are useful to assess Rale’s offer. Because through Exhibit 10, we can figure out what the average permium paid level were. And Rale’s offer were much lower than the average level, which means the target company were likely to be estimated higher than Rales’ offer.

Yes, these market multiples of competitors are useful. Exhibit 11 shows that in Rale’s proposal to Interco’s Apparel Companies and Central Hardware Division are roughly at the average multiples in those industries. However, the purchase price multiples of Furniture Manufacturing Companies and Footwear Manufacturing Companies were obviously low compared to their competotors.

4.

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As the notes gives,

|Outstanding shares |37,500,000 |

|Debt |318,500,000 |

So,the stock shares values with different EV/Sales ratio are as the following tables show,

1) using smallest firm value-to sales multiples

|EV/Sales Ratio(smallest) |net sale(Y1987) |EV |

|Furniture |0.8 |1,105,563,000 |884,450,400.00 |

|Footwear |0.5 |890,411,000 |445,205,500.00 |

|Apparel...