1. Assess Intercos financial performance.

Why is the company a target of

a hostile takeover attempt?

Sales growth and margins improvement in Footwear and Furniture

segments (Largest furniture manufacturer in the world, Converse and
Florsheim Shoe commanded leading positions in the respective market
segments of athletic and mens traditional foot wear)
The groups directors, nominees and officers as a group has only owned
1.14% of the shares, which makes it very easy for the outside investor to
convince the remaining shareholders
Very less levered at 19% debt to capitalization ratio, it is very easy for
investor to do an LBO and still get significant returns
Divesting Apparel and retail divisions significantly improves the ROE of the
company and further leveraging the company can give significant returns
After the stock market crash of October 1987, the stock is trading at an
attractive price and looked like a bargain buy

2. As a member of Intercos board are you persuaded by the premiums

paid analysis (Exhibit 10) and the comparable transactions analysis
(Exhibit 11)? Why?

In both the premium paid analysis and comparable transaction analysis,

baring the apparels division comparable analysis, all other analysis point
out that the price offered by Rales is significantly lower compared to the
market scenario.
Most of the comparables used in the transaction analysis are in no way
comparable to the size of Interco and in the premiums paid analysis no
insights have been given in terms of the premiums paid for acquisitions
before the stock market crash and we have no idea regarding the industry
of the transactions taken.

3. Wasserstein, Perella & Co. established a valuation range of $68-$80

per common share for Interco. Show that this valuation range can
follow from the assumptions described in the discounted cash flow
analysis section of Exhibit 12. As a member of Intercos board, which
assumptions would you have questioned? Why?

The assumption of lower growth and margins for hardware and foot
divisions and relatively higher margins for retail and apparel divisions
While the tax rates has been decreasing, assuming a flat rate of 41%
seems unreasonable.
Terminal value calculation at 14 16X, assumes a growth rate of ~3%
infinitely (how accurate is this)
If corporate borrowing itself is at 10%, how feasible is it to assume 10% as
WACC

4. How would you advise the Interco board on the $70 per share offer?

The company needs to carry on with the divesture of retail and apparel
divisions and issue special dividends