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, ...view middle of the document...
In that case AGI can decrease its prices to some extent and relieve the pressure from suppliers and competitiors.
2. Review the projections formulated by Liedtke. Are they appropriate? How would you recommend modifying them? Justify.
They are appropriate to some extend. However, assumptions that they made may not be come true. Especially, the one that winding down the women’s casual footwear within one year.
3.Estimate the value of Mercury using a discounted cash flow approach and Liedtke’s base case projections. Be prepared to defend additional assumptions you make.
WACC= wdxrd(1-T) + wsrs
rs=rRF + (rM- rf)xb
b= industry average= 1.5578
rM= industry average=9.7%
rRF= US Treasury(10-20 years maturity)=4.83%
rs=4.83 + (9.7 -4.83)x1.5578 = 12.42%
WACC= 0.20x6x0.6 +0.80x12.42= 10.66%
4. How would you analyze possible synergies or other sources of value not reflected in Liedtke’s base case assumptions? Explain.
Acquisition can increase the market share of AGI. In addition, making line extension with athletic foot products can increase the brand awareness and can give positive effect to brand image. It may use the advantage of scaling, economies of scaling can give cost advantages.