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Interco Business Case

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Interco Summary of the Case Even before we go into the specifics of the case, we can point out a few important pieces of information from the case: 1) Interco management and Wall Street analysts believed that the apparel group’s performance would continue to weaken Interco’s overall operations and cause the equity markets to undervalue its common stock. Case Page 4. 2) To deter any unwanted third- party acquisition, the board voted on July 11, 1988, to amend Interco’s shareholder rights plan, making any hostile takeover of the company prohibitively expensive. Case Page 4. 3) Interco had retained Wasserstein Perella pursuant to a unique compensation contract that offered a substantial contingency fee of $3.7 million payable to Wasserstein …show more content…

Premiums associated with tender offers, as measured against stock prices one day or one week prior to the offer announcement, would be affected by information leakage and the extent to which a company was viewed as “in play” by the arbitrage community. And the issue of fairness would seem to depend more on the absolute, not relative, degree to which the Rales brothers’ bid exceeded the current stock price. See exhibits 3 and 4. Do you think analysis in Exhibit 10 justifies rejecting the bid? 3 Exhibit 4 tells us that the stock price of Interco started going up in July from about $44 to $72 on the day of the Board meeting. This tells us that markets anticipated that Inteco is a target for acquisition and increased the stock price of Interco in anticipation of an acquisition premium. 4 Comparable Transaction Analysis The comparable transaction analysis yields values ranging from $2 billion to $6.4 billion. Given such a wide range of numbers, it is not possible to pinpoint or arrive at reasonable estimates of value for Interco. 5 Discounted cash flow analysis in Exhibit 12 We do not know the beta for Interco’s equity. Therefore, it is not possible for us to estimate the weighted average cost of capital (WACC) for Interco. Note that here WACC method is appropriate because Interco is not

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