...Mercury Athletic Footwear: Valuing the Opportunity Team 10 / Mergers and Acquisitions West Coast Fashions, Inc (WCF) was a large business, which dealt with men’s and women’s apparel. One of their segments was Mercury Athletic Footwear. WCF wanted to dispose off this segment. They just wanted to divest because they wanted to focus more on their core business and move it up to the elite class. John Liedtke was the Business Development Head at that time in Active Gear Inc. He had a clear idea that acquiring Mercury will shoot up AGI’s revenues for sure. It would also ensure an expansion of the key business. In order to get a clearer picture on the acquisition, he needed to compare and analyze the company’s financials well. By this he could gauge the pros and cons of this acquisition. Are the strategic reasons behind the Merger good enough? Explain As a team, we had different views on this question. Some reasons make us think that it may be beneficial for AGI to grab the opportunity but some make us think that it might not be as promising as it seems. Let us see why we feel it is a good idea for AGI to acquire Mercury. | |Active Gear Inc. |Mercury Athletic Footwear | |Revenue |$470,285mn |$431,121mn | |% Revenue Product wise |42% Athletic 58% Casual ...
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...MERCURY ATHLETIC FOOTWEAR Problem statement: West Coast Fashions, Inc a large business of men’s and women’s apparel decided to dispose of one of their segments; Mercury Athletic. John Liedtke, head of the business development for Active Gear, Inc saw it has a possible opportunity for them to acquire it. The footwear industry is very competitive, with low growth and stable profit margins. AGI is very profitable but it is smaller than its competitors, which is becoming a disadvantage. Therefore, Liedtke believes that if they takeover Mercury will double AGI’s revenue, increase it’s leverage with contract manufactures and expand its presence with key retailers and distributions. Liedtke is evaluating the company in order to find out whether the future benefits justify or surpass the present value of the investment in Mercury. Analysis: In order for Liedtke to get a broader picture on the acquisition of Mercury, he needs to compare and analyze a list of financial data from 2006 to 2011; projected balance sheet accounts, operating results and free cash flows, and cost of capital calculations. This data will enable him to identify the strengths and weaknesses of this acquisition. First lets look a summary of the operations of both AGI and Mercury Athletics’ actual operations based on the last year given 2006 before AGI plans of acquiring Mercury. | |Active Gear, Inc |Mercury Athletic ...
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...Active Gear, Inc. Active Gear, Inc. is an athletic shoe company, which, at the time of the case focuses on casual and recreational footwear aimed at a core demographic of suburban family members aged 25-45. The shoes are generally considered to be fashionable and functional. The casual line of shoes is sold in general retail stores, department, and specialty stores via wholesalers and independent distributors. The athletic line is made through independent sales representatives to a small number of sporting goods stores, pro shops, and specialty athletic stores. AGI has in part maintained their perceived high quality brand image by abstaining from selling through discount retailers. Although they feel this decision has preserved operating margins, they believe it has hurt sales growth. By focusing on a smaller portfolio, Active gear has been able to maintain relatively simple and efficient production an supply chains. This has led to a competitive advantage by way of avoiding poor industry cycles, write-downs, and missed profit opportunities. AGI’s days in inventory is 42.5, much lower than the industry average of 50.9. Despite the fact that AGI is among the most profitable firms in the industry, AGI has started to believe their smaller than industry average size is resulting in a competitive disadvantage. Mercury Athletic Mercury is a smaller shoe company with a highly niche market. The demographic for the company is 15 to 25 year olds with an interest in extreme sports...
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...TO: Lecturer FROM: Student RE: Mercury Athletic Footwear Acquisition Net Present Value of Mercury Athletic Enterprise The results of my financial analysis based on the Free Cash Flow Method considering the base case of financial projections and assumptions for Mercury Athletic Footwear collated and developed by John Liedtke indicate that that the project to acquire Mercury Althletic has a positive net present value at $243,025 (in thousands) [ given by PV(FCF)=86,681+ PV (Terminal Value) =156,343] which is also greater than the recommended acquisition price of $186,216 (in thousands),therefore Active Gear Inc. should proceed with the acquisition of Mercury’s operation. Free Cash Flow The free cash flow from Mercury’s business operations was determined using the base case for the consolidated operating income, expenses, tax rate and depreciation to determine the net operating profits after tax (NOPAT) for the years 2007-2011. Free cash flow was then calculated using the formula (FCF= NOPAT + Depreciation-∆ Net Working Capital -∆Fixed Assets) which was evaluated at $21,240, $26,727, $ 22,097, $25,473 and $29,545 for the years 2007, 2008, 2009, 2010 and 2011 respectively. The Cost of Debt and the Cost of Equity The next step was to determine the coast of debt, using the assumptions made by Mr. Liedtke which outlines a tax rate of 40%, the cost of debt of 6% for a leverage of 20% debt. The after-tax cost of debt (RD) was determined to be 3.6% [using RD =(R*(1-Tax...
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...MGMT S-2720 Assignment 1: Mercury Athletic Footwear Questions: 1. Is Mercury an appropriate target for AGI? Why or why not? 2. Review the projections by Liedtke. Are they appropriate? How would you recommend modifying them? 3. Estimate the value of Mercury using a discounted cash flow approach and Liedtke’s base case projections. 4. Do you regard the value you obtained as conservative or aggressive? Why? 5. How would you analyze possible synergies or other sources of value not reflected in Liedtke’s base assumption? 1. Is Mercury an appropriate target for AGI? Why or why not? Yes, we believe Mercury is an appropriate M&A target for AGI and should be pursued. The Footwear Industry is a competitive business. We can analyze the industry and summarize some of the critical characteristics below: • It is a highly competitive industry. There are many competitions in the field, thus growing the market share is difficult. However, brand loyalty leads customers to repeat sales, thus producing a stable sales numbers, and stable profit margin. • Fashion is changing at a very high pace. A company must produce the latest fashion trend that caters to the customer’s taste and lead the market. Individual company’s performance depends on their fashion design to reach out to as wide a customer base as possible. • Footwear brands, styles, and specialty use (athletic, casual, dress, etc…) have their own customer base. A company specializing in one type of footwear would...
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...Mercury Athletic Footwear: Valuing Opportunity Case Summary: John Liedtke, head of business development for Active Gear Inc. (AGI), is evaluating the acquisition of Mercury Athletic (Luehrman & Hielprin, 2009). Both companies compete in the footwear industry which is a highly competitive industry characterized by low growth and stable profit margins (Luehrman & Hielprin, p. 1). Liedtke’s initial assumptions was that the acquisition of Mercury Athletic would double AGI’s revenue, increase its leverage with manufacturers and expand its distribution. In order to evaluate these assumptions and determine if the acquisition would be a good decision, Liedtke generated pro forma income from Mercury’s four main segments and key balance sheet account for the years spanning 2007 through 2011. In preparing these, he made the following assumptions: • Mercury’s women’s casual footwear would be merged with AGIs within the first year. • Overhead to revenue ratio would conform to historical averages • Capital structure would follow AGI post acquisition • Discount rate was calculated using AGI’s leverage and tax rate Additionally, he was counting on synergies between the two companies with respect to inventory management and the women’s casual footwear line. Using this information, he calculated projected EBIT margin of 9% and revenue growth of 3%. Case Questions: a. Is Mercury an appropriate target for AGI? Why or why not? According to Liedtke, Mercury is...
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...Examine the connection and the differences between the official exchange rate market controlled by the CADIVI and the permuta. Discuss the states of equilibrium in each of these markets. Central banks intervene in foreign exchange markets in order to achieve a variety of overall economic objectives, such as controlling inflation, maintaining competitiveness or maintaining financial stability. The precise objectives of policy and how they are reflected in foreign exchange market intervention depend on a number of factors, including the stage of a country‟s development, the degree of financial market development and integration, and a country‟s overall vulnerability to shocks. The precise definition of which operations in forex markets constitute “intervention” has also been a matter of controversy (Adams, Henderson 1983). After the Chavez administration imposed tight foreign exchange measures, with the intention of curbing the outflow of US dollars from Venezuela, citizens had to apply to the Comision de Administratracion de Divisas or CADIVI to buy dollars at the official exchange rate. The Central Bank of Venezuela would fix a monthly allocation of foreign currency to be administered by CADIVI, purchase foreign currency from residents, and sell foreign currency to the public and private sectors subject to approval from CADIVI (BIS 2005). Dollars sold were rationed and the US dollars supplied were not enough to fill the needs of the citizenry. The surplus demand was satisfied...
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...2009 TIMOTHY A. LUEHRMAN JOEL L. HEILPRIN Mercury Athletic Footwear: Valuing the Opportunity In March 2007, John Liedtke, the head of business development for Active Gear, Inc., a privately held footwear company, was contemplating an acquisition opportunity. West Coast Fashions, Inc. (WCF), a large designer and marketer of men’s and women’s branded apparel had recently announced plans for a strategic reorganization. The plan called for a divestiture of certain non-core assets and a renewed focus on WCF’s higher-end business, business-casual, and formal-wear apparel businesses. One of the divisions WCF intended to shed was Mercury Athletic, its footwear division. Liedtke knew that acquiring Mercury would roughly double Active Gear’s revenue, increase its leverage with contract manufacturers, and expand its presence with key retailers and distributors. He also expected that Active Gear’s bankers would quickly approach the company about a possible bid for Mercury; consequently, he wanted to complete his own rough evaluation of the opportunity before hearing the bankers’ pitch. Athletic and Casual Footwear Industry Footwear was a mature, highly competitive industry marked by low growth, but fairly stable profit margins. Despite the industry’s overall stability, the performance of individual firms could be quite volatile as they vied with one another to anticipate and exploit fashion trends. The market for athletic and casual shoes remained fragmented, despite...
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...Mercury Athletic Footwear1. Is Mercury an appropriate target for AGI? Why or why not? A recomendação é que a AGI se mostra um alvo interessante de compra para a AGI. Isso porque a Mercury atua em segmentos que a AGI possui pouca atuação. Dessa forma a AGI poderia ganhar market-share dentro da indústria de calcados e ter os ganhos de escala e redução de custos que seriam importantes para o aumento das margens e da lucratividade da empresa. A análise, feita baseada no método do FCD, considera: Valor: NPV+TV - Preço de Compra ------------------------ Saldo > 0 2. Review the projections formulated by Liedtke. Are they appropriate? How would you recommend modifying them? As projeções de Liedtke não prevêem esse ganho com a sinergia entre as empresas. Liedtke mantém as margens operacionais fixas durante o período de projeção e é bastante conservador em relação ao crescimento de vendas. Nesse caso, seria interessante medir e projetar os possíveis ganhos de escala e na redução de custos fixos e sua conseqüência no aumento da competitividade e no aumento das vendas (redução dos custos pode levar a uma redução nos preços para ganho de mercado ou manutenção das margens para maiores ganhos, dependendo da estratégia esperada para o grupo) 3 . 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. Fiquei em duvida em algumas coisas…. Para o calculo do Net working...
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...John Liedtke, the head of business development for Active Gear, Inc. (AGI), a privately held footwear company, is faced with a potential acquisition opportunity. West Coast Fashions, Inc. (WCF) has decided to strategically reorganize its company, and one of the divisions it intends to shed is Mercury Athletic (MA), its footwear division. Lietdtke knows that acquiring Mercury Athletic would roughly double Active Gear’s revenue, increase its leverage with contract manufacturers, and expand its presence with key retailers and distributors. Before hearing the pitch from Active Gear’s bankers on a possible bid, Mr. Lietdke wants to do his own evaluation of Mercury Athletic first. From a qualitative perspective, MA is an appropriate target for AGI. There are some advantages that AGI should consider for the acquisition of MA. AGI will obtain more product diversification, technology advancement, and a larger distribution channel. That being said, Mr. Liedtke needs to figure out an estimated valuation for an expected bid offer. The valuation techniques that can be used for the acquisition of MA is the discounted cash flow (DCF) method while also looking at comparable metric ratios across the industry. Some comparable metrics that Lietdke could analyze for MA to compare across the industry are P/E, EV/EBIT, and EV/EBITDA. Lietdke should also be aware of potential problems associated with the DCF strategy. The problems outlined in chapter 9 include, the typical investment opportunity has...
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...MERCURY ATHLETIC FOOTWEAR Problem statement: West Coast Fashions, Inc a large business of men’s and women’s apparel decided to dispose of one of their segments; Mercury Athletic. John Liedtke, head of the business development for Active Gear, Inc saw it has a possible opportunity for them to acquire it. The footwear industry is very competitive, with low growth and stable profit margins. AGI is very profitable but it is smaller than its competitors, which is becoming a disadvantage. Therefore, Liedtke believes that if they takeover Mercury will double AGI’s revenue, increase it’s leverage with contract manufactures and expand its presence with key retailers and distributions. Liedtke is evaluating the company in order to find out whether the future benefits justify or surpass the present value of the investment in Mercury. Analysis: In order for Liedtke to get a broader picture on the acquisition of Mercury, he needs to compare and analyze a list of financial data from 2006 to 2011; projected balance sheet accounts, operating results and free cash flows, and cost of capital calculations. This data will enable him to identify the strengths and weaknesses of this acquisition. First lets look a summary of the operations of both AGI and Mercury Athletics’ actual operations based on the last year given 2006 before AGI plans of acquiring Mercury. | Active Gear, Inc | Mercury Athletic | Revenues | $470, 286 m | $431,121 m | % Of Revenue Product | 42 % athletic...
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...Libros de Gerencia Resumidos Curso corto para gerentes 33 tácticas para mejorar su carrera por Bil Holton y Cher Holton RESUMEN EJECUTIVO Bil y Cher Holton presentan 33 “recetas” cortas para mejorar de inmediato sus habilidades en el trabajo. Si se arriesga a probarlas, seguramente le ayudarán a ser más productivo, más efectivo y más visible ante los ejecutivos que le pueden ayudar en su carrera. Los consejos están clasificados por tópico: 1. Dar poder (Empower) a sus subordinados. 2. Actuar como un líder. 3. Dar la bienvenida al cambio. 4. Comunicarse para obtener mejores resultados. 5. Manejar el tiempo. 6. Alcanzar su máximo potencial. 7. Usar la creatividad en todo lo que hace. Lo interesante de estos consejos es que los puede aplicar utilizando los recursos con los que ya cuenta. No necesita pasar horas de estudio para comenzar a aplicarlos. La mayoría de las tácticas requieren trabajo y auto disciplina. Pero nadie ha logrado objetivos importantes de otra manera. Pequeñas celebraciones, hechas con frecuencia, hacen una gigantesca diferencia en la moral y en la productividad. 2. Administre la pila de trabajo Escriba la siguiente frase en un papel: “El procedimiento o regla o regulación o política más fastidioso y humillante con el que tengo que vivir es…”. Distribuya copias de este papel entre los miembros de su equipo e invierta una mañana discutiéndolo con ellos. Escriba todas las frustraciones en un papel, y comprométase de inmediato a hacer los cambios necesarios...
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...Mercedes-Benz USA, LLC AUTHORIZATION AGREEMENT FOR AUTOMATIC PAYROLL AND ACCOUNTS PAYABLE DEPOSIT To: Payroll Department, Montvale Check One: [ ] New Authorization [] Cancellation [ ] Change – Please note reason: ____________________________________________ Please Print Financial Institution: ________________________________________________________________ Address (Local Branch): ________________________________________________________________ City, State, Zip Code: ________________________________________________________________ Transit Routing (ABA) # ________________________________________________________________ (available from your bank must be 9 positions) Checking or Savings: ________________________________________________________________ Account Number: ________________________________________________________________ (No more than 17 positions) Please attach a blank voided check. It must show the bank imprinted account and transit routing numbers. If this information is not attached your request will not be processed. Please Print Employee Name: ________________________________________________________________ Cost Center and Phone #: ________________________________________________________________ Employee ID Number: ________________________________________________________________ Employee Email Address: ________________________________________________________________ I authorize Mercedes Benz USA, LLC to make payroll deposits to my account as...
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...------------------------------------------------- ------------------------------------------------- Mercury Athletic Footwear: Valuing the Opportunity By Christian Daba Submitted To John Katkish Background West Coast Fashions, Inc has decided to sell one of their segments, Mercury Athletic in the context of a broader reorganization. The head of the business development for Active Gear, Inc(AGI), John Liedtke, views this event as a good opportunity to acquire Mercury Athletic. Acquiring Mercury, to a large extent, is driven by that Mercury would double Active Gear’s revenue, increase its leverage with contract manufacturers, and expand its presence with key retailers and distributors. More importantly, this is due to some inferior performance AGI is going through, mainly the small size does not put AGI in a dominating negotiating position with its contract manufacturers. Meantime, some possible synergies make Mercury Athletic a very appropriate target. However, John Liedtke has not completed his evaluation of this opportunity by using various methods. Qualitative valuation Firstly, there are some facts should be considered: 1. AGI and Mercury are in the same industry—footwear, and both have casual and athletic segments, and are located in North America. 2. Their brand images and target consumers are quite similar. AGI brand and logo are associated with a lifestyle hat was prosperous, active and fashion-conscious. Likewise, Mercury monitored styles and image that are from a global youth culture...
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...term a comprehensive case will be assigned that will involve questions addressing the learning outcomes of the course. Emphases are placed on the areas of valuation, techniques of financial analysis, cost of capital, free cash flow estimation, risk analysis, real options, and current financial issues. Students will be given three hours to analyze and write up their answers to the following questions (percentages indicate the grading importance of the item): (1)Prepare an executive summary to sum up analytical results and recommendation. (10%) (2) Review the projections formulated by Liedtke. Are they appropriate? How would you recommend modifying them? (15%) (3) Estimate the present value and internal rate of return for the Mercury acquisition using a discounted cash flow approach and Liedtke’s base case projections. Clearly indicate and justify the values used for all relevant cost of capital calculations and defend any assumptions that you felt were necessary. (20%) (4) Perform sensitivity analysis and other risk analysis you consider appropriate on key variables and assumptions of this investment. Identify the effect on NPV of deviations in key factors from those presented in the base case. Do you feel that these risks are acceptable? Under which conditions would you not proceed with this acquisition? (20%) (5) Can you identify valuable synergies other than those identified by Liedtke? (15%) (6) Can you identify any real options embedded in this acquisition?...
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