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Assess Interco's Financial Performance. Why Is the Company a Target of a Hostile Takeover Attempt?

Autor:   •  December 9, 2015  •  Essay  •  389 Words (2 Pages)  •  804 Views

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  1. Assess Interco's financial performance. Why is the company a target of a hostile takeover attempt?

    Interco's overall financial performance is relatively healthy. By analyzing company’s current ratios using the formula total current assets divided by total current liabilities for the years 1986-1988  we can conclude that the company is highly-liquid as the current ratios over that years are consistently improving which shows that company has enough cash to meet its current obligations. Usually company’s receivables and inventory are the best indicators of company’s liquidity. Its accounts receivable days indicate that in 1987 it took longer to collect on outstanding accounts while this figure would drop in 1988. The same trend follows with its inventory days, increasing in 1987 and decreasing in 1988, which would signal that its turnover was slower in 1987 and faster in 1988. The accounts payable days increased in 1987 while slightly decreasing in 1988. This is a healthy trend as Interco was able to take longer to pay off its current expenses than the past.

If we look at company’s important consolidated statement of earnings’ items as sales and net earnings we would observe an improvement of sales and net earnings over year 1987 by 4.043% and 4.944% , respectively. And over year 1988 by 13.388%  and 15.289%, respectively.

Also we can notice divisional activity decline in the company. For example, general retail and apparel manufacturing divisions are struggling while footwear and furniture divisions improved in their activities. Therefore, since the overall performance of the company is improving, although some divisions are not pulling their weight, this means the stock price might be undervalued (due to the inefficiencies). Thus, Interco is a viable target for takeover and restructuring. In addition to being a target of takeover, Interco is  is likely to be the target of a hostile takeover due to the attitude of management within the organization. In this situation, Interco’s  management has made it clear that they do not want to be taken over; management feels that the  firm can be turned around by restructuring and selling off the apparel and general retail division.

Therefore, in general, management is more likely to have a higher opinion of the value of the

firm than the acquiring firm.   This appears to be the situation with Interco and the current offer

from City Capital Associates.

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