Interco Case Study Memo

INTERCO Case Study Memo

Tianyu, Chai

UIN:673067895 Section: 8:00 am

1,

Interco is a target of a hostile takeover attempt due to its overall positive financial performances. There is an increase of 4% in total assets on May 31th 1988, above that of corresponding period of 1987. The sales increased by 13.4% and net income by 15.4% in 1987.

Though the apparel and general retail segments decreased in operating earnings. The furniture and home furnishing group earn profit of $149 versus $123.8 million in fiscal 1987 and Footwear group earn profit of $92 versus $52 million, which contribute to the growing net earnings of the company. Besides, Interco is over capitalized, the company might paying too much interests or dividendsIn sum, there are potential for the company’s continue growth and positive returns for its investors.

2,

Based on the Premiums Paid Analysis, the price offered are lower than the average stock price of other tender offers in 1988.

It is reasonable to believe that the rapid growth of stock price of Interco might be influenced by the potential takeover opportunity, that is to say that we should not rely too much on the one-day data. The average premium paid in four weeks is 59.1% , much lower than 80.9% the average premium paid, which suggest a higher expectation from the board and a choice of declining the offer. However, we have to be aware that the information provided might not be relative. The premiums in different industries varies, it is too arbitrary to apply the average premium to Interco. Also, it does not measure the market’s reaction to the news of the takeover.

The information is insufficient, thus the data is not useful in assessing the offer.

3,

The comparable Transaction Analysis presents various market multiples enjoyed by competitors of Interco arranged by division, but the information of Interco provided is the overall price and overall net income, which is not comparable. It is better to...