Question

The Mercury Footwear Case

You will be approaching this assignment from the perspective of John Liedtke, head of business development for Active Gear (“AGI”), which is considering bidding to buy another company, Mercury Footwear. You will presumably want to assess the acquisition as a strategic matter, i.e. why AGI would want to buy this company and whether it is a good fit. You may also want to evaluate Liedtke’s projections as shown in the case, although we
would prefer that you use those projections as the best estimate available for Mercury’s expected results over the 2007- 2011 timeframe. You are free to evaluate synergies and changes to Mercury’s business plan that are not fully incorporated into the projections, if you think AGI should take them into account in its acquisition decision or bidding strategy.

Your main task is to put a value on Mercury Footwear. Although you are not prohibited from using information in Exhibit 3 on comparable multiples, we expect you to base your valuation on the DCF tool. For this case, you will have to come up with a discount rate to use in applying that tool. You should back up your work with one or two clearly marked
tables. Avoid including too many or overly complicated tables, which would be inappropriate for a senior executive at AGI try to follow in any case.

Should AGI put in a bid for this company? If so, what price?

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The acquisition of Mercury Athletic Footwear by Active Gear Inc. is a strategic move and it is expected to yield the following synergies:
• Operating synergies which would result from scale economies and better purchase terms from manufacturers.
• Scale economies with respect to distribution since the distribution channels of both the companies would be combined and they can sell the extended portfolio of products through the broader distribution channels.
• Expansion of the net product offerings since the brands of the entities would be combined....

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