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
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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
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1) Is Mercury an appropriate target for AGI? Why or why not? Explain. It can be recommended that Mercury could acquire AGI. Revenues of AGI ($470,286) and Mercury ($431,121) are somewhat similar, so acquiring Mercury will increase the sales. In addition, the remarkable part of the Mercury’s revenue comes from athletic shoes segment whereas AGI positions itself as a brand for more casual footwear. Thus, acquiring a brand specialized in a segment in which AGI is some kind of weak, might be a wiser
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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
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Using the discounted cash flow model approach and Liedtke’s base case projections, the value of Mercury was estimated to be approximately $421,437,699. The free cash flows for Mercury Athletic Footwear from 2007 to 2011 were calculated from Liedtke’s projections of Mercury’s performance and balance sheet (Exhibit 6 and 7). From Liedtke’s projected performance of Mercury Athletic Footwear, earnings before interests and taxes (EBIT) was evaluated from the consolidated revenue and operating expenses
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VALUATION IN CORPORATE FINANCE BUFN 750 Case 1: Mercury Athletic Footwear Section: 0502 Group members: Wenqi Fan (114332905) Shuhan Luo (114016706) Ruidong Li (114212986) Siyao Tian (114218377) Shuang Yang (114349156) Executive Summary: Mercury Athletic is the footwear division of West Coast Fashions (WCF), a designer and distributer of branded athletic and casual footwear, targeted at youth market. Due to strategy reorganization, WCF wanted to shed this segment. In the meantime
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Mercury Athletic Footwear: Valuing the Opportunity Merger and Acquisition Assignment * Is mercury an appropriate target for AGI? Why or Why not? The footwear industry is highly competitive industry with fairly stable profit margins. In this industry, players compete on basis of style, price and quality. Success factors are active management of inventory and production. Active Gear is a profitable firm in the industry; however Active Gear is a smaller firm than many other competitors and
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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
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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:
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also endangered Active Gear s growth. Mercury Athletic Footwear designs and distributes athletic and casual footwear dominantly to the youth market. Mercury competes in four main product lines: men s and women s athletic and casual footwear. Men s athletic footwear is the leading product for Mercury Athletic. Women s casual footwear is Mercury s worst performing product and post-acquisition the line may be discontinued by Active Gear. The acquisition of the Mercury Athletic division has sources of potential
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