Mercury

Is Mercury an appropriate target for AGI? Why and why not?

Should acquire

Review the projections formulated by Liedtke. Are they appropriate? How would you recommend modifying them?

• Wound off Women’s casual footwear after 2007 (lower acquisition price, lower future total profitability, fold this into AGI’s)

Estimate the value of Mercury using a discounted cash flow approach and Liedtke’s base case projections. Be prepared to defend additional assumptions you make.

• maybe: overhead-to-revenue ratio would be using historical averages
• no independent balance sheet for Mercury
• Women’s casual line will wound down in the first year of acquisition

1. compare historical growth rate to projected growth rate(in case study) by each segment
2. compare total revenue growth, EBIT and EBIT MARGIN
3. projection of selected balanced sheet accounts (tables and graph, ROA: EBIT/Total Asset, TA turnover= Sales/ Total asset, current ratio= Current Liability/ Current Asset , debt ratio= Total Liablity/ Total Asset)

Do you regard the value you obtained as conservative or aggressive? Why?

* if lower WACC, cost of capital and high enterprise value, is aggressive

FCF, WACC, TERMINAL VALUE,acquisition price and NPV

• NWC= Total CA- Total CL (Cash+A/R+inventory+prepaid Expe)-(A/P+Accrued Exp)
• Change in NWC for each year
• FCF=EBIT*(1-Tax)+Dep-Change in NWC-Cap. Exp
• Cost of debt: rd*(1-T)
• Cost of equity=rRF+(rM-rRF)*beta
• WACC=RdAT*D/V+Rs*E/V

How would you analyze possible synergies or other resources of value not reflected in Liedtke’s base case assumptions? (1-2 pages)

*competitive advantages: maybe it could obtain more product diversification, technology advancement from Mercury, larger distribution channel

*rise in production and sales as the increased size of this joint corporation

more efficient, enjoy economic of scales, not require the double employees

increase size of this new joint corporation, 2 companies reverie higher discount from the row suppliers