Interco Harvard Case
Case Interco
Introduction
Interco is a shoe company founded in 1911. Its business has spread to other product through acquisitions. Equity analysts saw Interco as a conservative company that was not highly leveraged leading to high financial flexibility. This allowed the firm to repurchase share and make acquisitions when the opportunities were there. Interco has four major divisions; Apparel Manufacturing, General Retail Merchandising, Footwear Manufacturing and Retailing and Furniture and Home Furnishings. Within these divisions were independent companies. Interco’s goals were long-term sales and growth of earnings, higher return on corporate assets and improved return on equity. To achieve these goals, Interco’s approach was to improve the profitability of existing operations and divesting underperforming assets. Besides that it had to make acquisitions with expected higher returns and growth.
During the fiscal year 1988 the overall performance of Interco was positive, with increasing sales and net income. This was mainly due to the furniture and home furnishings group and the footwear group. Despite restructuring efforts, the apparel manufacturing and general retail division had problems with declining earnings and sales only advancing at a moderate rate.
Interco management believed that the bad performance of the apparel group would lead to a weakening of overall operations and cause the equity market to undervalue its shares. Due to this situation, Interco was seen as a potential takeover target. Despite restructuring efforts, City Capital owning already 8,7% of Interco’s stock proposed a merger with Interco. It offered to buy all of Interco’s shares at a price of $64 per share. Interco’s reaction was to mandate Wasserstein Perella’s as financial advisor to see how much Interco was worth. In August 1988 City Capital raised its offer for Interco to $70 per share, stating its willingness to increase the price offered if a review of the company would
Introduction
Interco is a shoe company founded in 1911. Its business has spread to other product through acquisitions. Equity analysts saw Interco as a conservative company that was not highly leveraged leading to high financial flexibility. This allowed the firm to repurchase share and make acquisitions when the opportunities were there. Interco has four major divisions; Apparel Manufacturing, General Retail Merchandising, Footwear Manufacturing and Retailing and Furniture and Home Furnishings. Within these divisions were independent companies. Interco’s goals were long-term sales and growth of earnings, higher return on corporate assets and improved return on equity. To achieve these goals, Interco’s approach was to improve the profitability of existing operations and divesting underperforming assets. Besides that it had to make acquisitions with expected higher returns and growth.
During the fiscal year 1988 the overall performance of Interco was positive, with increasing sales and net income. This was mainly due to the furniture and home furnishings group and the footwear group. Despite restructuring efforts, the apparel manufacturing and general retail division had problems with declining earnings and sales only advancing at a moderate rate.
Interco management believed that the bad performance of the apparel group would lead to a weakening of overall operations and cause the equity market to undervalue its shares. Due to this situation, Interco was seen as a potential takeover target. Despite restructuring efforts, City Capital owning already 8,7% of Interco’s stock proposed a merger with Interco. It offered to buy all of Interco’s shares at a price of $64 per share. Interco’s reaction was to mandate Wasserstein Perella’s as financial advisor to see how much Interco was worth. In August 1988 City Capital raised its offer for Interco to $70 per share, stating its willingness to increase the price offered if a review of the company would