Mercury Case Study

Mercury Athletic Footwear Case Study

Background and Problem Statement

West Coast Fashions, Inc. (WCF) is a large corporation which designs and markets branded apparel for men & women. In 2007, they announced “strategic reorganization” plans. Their plan was to divest all parts of the business which were considered to be non-core assets. Mercury Athletic was one of those businesses. Mercury was the footwear division of WCF.

Active Gear, Inc (AG) is a privately held footwear company. AG is a mid-sized athletic and casual footwear company. Acquiring Mercury would give AG the opportunity to nearly double the size of their business.

The case states that the footwear industry is a mature, highly-competitive industry with low growth, but fairly stable margins. Some of the firms showed occasional volatility during time of intense competition during various fashion trends. Despite the potential for fluctuation in a company’s financials, AG seems to have the impression that they feel they are quite stable; their description of recent years was referred to as “years of steady, if unspectacular growth”. To me, that’s another way of saying “stable”.

I realize this stability is an assumption; but the case notes and background did not mention any possibility volatility in AG’s background. So one has to assume (at least initially), that they are a stable company which fits the general overview of the industry standard. Perhaps a brief review of their financials will determine if this assumption is right or wrong.

John Leidtke, head of business development for AG, was contemplating the acquisition of Mercury. He anticipated that AG’s bankers would be assembling an evaluation of Mercury; and he wanted to do some calculations beforehand to compare the two assessments.

There really isn’t a “problem” to solve with this case. Mainly, we need to determine if Mercury is worth buying. And as a part of that analysis, we need to see if AG is stable enough to...