Mercury Case

In: Business and Management

Submitted By siyaotian
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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, Active Gear, Inc., (AGI) looked to acquire Mercury from WCF, believing that the purchase would double its revenue and provide greater leverage with manufacturers and distributors. This case illustrated that
Liedtke used base case assumptions to value Mercury, and also wanted to consider the value of possible synergies as well to justify that whether investing in Mercury would significantly improve AGI’s business. In order to achieve the above set goal, our group estimate financial data of the merged company from 2007-2011 based on each’s historical data. Regarding the
DCF model valuation, using a WACC of 12.17% and long term growth rate 7.42% for the terminal value, then we concluded value of $458.31 million at the end of fiscal 2006. In addition, we primarily considered potential benefits and opportunities based on horizontal acquisition, which could bring about scale effect and resource complementary. Finally, these possible synergies should be taken into account to adjust our evaluation on acquisition.

Background Information:
AGI is a small footwear company founded in 1965. The simplified supply chain management and no selling through discount retailers are two key factors that helped maintain high profitability in the industry. However, the management team faced dilemma of small size and slow revenue growth.
Mercury had two main problems. The one was…...

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