Chapter 9 Case Study

EPILOGUE

In May of 1988, Interco was informed by an advisory firm that a single outside party was purchasing a “large volume” of available shares. In anticipation of a hostile takeover attempt, the firm enlists the services of Wasserstein Perella & Co. to do a number of valuations and provide guidance in assessing possible bids. The Rales brothers, heading up City Capital, then proceeded to make several bids in a merger proposal. Bids steadily increased from $64 to $70 and finally to $74. Between the second and third bids Interco decided to restructure in the form of significant leveraging which would be valued at $76 in debentures and cash. This issuance was to be finances through the sale of core assets including the Ethan Allen line. Interco announcement of its intentions and goal of a $25 per share dividend was met with a negotiation deadline by City Capital.

At that deadline, City’s latest bid was cancelled and the three million shares the company had acquired began to be sold off. Weeks later the last share was released for a total profit of over $60 million. Interco, however, was still bound by its obligations for restructuring based on the special dividend. It began to divest many of its major units. Although the restructuring had an expected value to shareholders of $76 per share, by July of 1989 the value had been reset at $61. Sales of the aforementioned assets are slow and unable to cover debt obligations. Stock price falls and Interco files chapter 11.