3. (6) Although their target customers are different, especially in ages, which means that style and brand are different in the very beginning, this factor could turn into an advantage for the new company could have a fully segment of customers with a wider age ranges. They target the global youth culture of alternative music, TV, and clothing. We can get the result. Estimation the value of Mercury based on discounted cash flows and Liedtke’s base case projections. (6) Inventory management and production lead times are critical for the success. Your name. And sometimes, analyst should be better than the historical growth. Athletic footwear refers to those shoes that are designed for sports and other outdoor activities. $431,121mn % Revenue Product wise. Are they appropriate? We take 14% as reference. Liedtke thought geting Mercury would approximately duplicate AG’s gross. expect g and terminal value in 2011 will be 2.6% and 374,576 respectively. And it faced with some problems in the consolidation of manufacturers. Mercury Footwear Questions - The Charles H Kellstadt Graduate School of Business DePaul University FIN 555 Financial Management Prof Joseph Vu Case, 8 out of 13 people found this document helpful, The Charles H. Kellstadt Graduate School of Business, Case Study Questions: Mercury Athletic Footwear, Active Gear, Inc. (AGI), a privately held footwear company, was considering acquiring, Mercury Athletic, the footwear division of West Coast Fashions, Inc. (WCF), a large apparel, company. In my opinion, the value calculated via alternative method will be more reliable. Revenue contribution I think my valuation is conservative, the reason is as follows: (1) Under the basic method, the expected g is much lower than the average g from 2007-2011, even lower the lowest one within this period and the reinvested rate is lower than the average one from 2007-2011 and also not a high one in general business, and we can also found the EBIT Margin is lower than the average one in that business. AGI Mercury Athletic Footwear $470.3 Million Sales Revenue in 2006 42% Revenue - Athletic Footwear 58% Revenue - Casual Footwear Among the best profit margins in the Industry Prosperous, Active, and Fashion-Conscious Brand Image. Mercury Potential to double revenues Increase leverage with manufacturers Increase long run growth rate Expand presence with key retailers and distributors. Mercury Athletic Footwear Case Mercury athletic footwear Group 7 Contents Executive Summary & Overview of Problems 3 Analysis on Mercury acquisition 4 Reasons why Mercury is an appropriate target for AGI 4 2. 26,867 Then the cost of capital will be 10.6%. Mercury Athletic Footwear: Valuing the Opportunity Case Solution. Under the alternative model, beta, risk free rate and risk premium are all sensitive to the outcome, but not significant as capital in basic model. (4) Thanks to the profitable ability of AGI, it is much easier to make a better financial performance of Mercury. Athletic shoes developed from high-performance footwear to athletic fashion wear. As for debt ratio and expect g, it is not so sensitive, but has some influence. And since the revenue is almost the same, it is a good choice to merge with Mercury, which means that revenue would be doubled after acquisition. AGI can improve its asset efficiency by investing in the development of its inventory management system. increase its purchase with contract makers and spread out its presence with cardinal retail merchants and distributers. Valuing Mercury Athletic. Email. In the case, we could find some characteristics of footwear industry: (1) It is a mature, highly competitive industry marked by low growth, but stable profit margin. We can find during the period from 2007- 2011, the growth rate of net income is not stable, so we assume from 2012, Mercury enter into stable and slow development stage. Mercury athletic footwear was acquired by the West Coast Fashion in late 2003. History MGMT S-2720 Assignment 1: Mercury Athletic Footwear Questions: 1. So, Mercury Athletic has 4 product ranges. And from the comparison of 2007 to 2006, we can find Liedtke’s forecast need great input from AGI to support the development of Mercury, whether he has taken this into consideration? Mercury Athletic Footwear Case Solution. You can find data on the course website in a spreadsheet named. Mercury was purchased by WCF in hopes to increase business revenue however this was not the case. Below are some characteristics for Mercury and AGI we need to focus on during the analysis: AGI MERCURY ATHLETIC FOOTWEARProblem statement:West Coast Fashions, Inc a large business of men’s and women’s apparel decided todispose of one of their segments; Mercury Athletic. Active Gear had recently increased its supplier concentration to improve its negotiating position because AGI’s small size … As for synergy, the management of inventory has not shown great synergic effect to the outcome, for from 2007 to 2011, inventory level has not reduced. Is Mercury an appropriate target for AGI? Mercury Athletic Footwear Case Study John Liedtke head of Active Gear, Inc. (AGI) is contemplating whether to invest in Mercury Athletic a subsidiary of West Coast Fashions (WCF). However, historical data is usually useless for future. 2. Review the projections by Liedtke. Focus on smaller portfolio of classic products with longer lifecycles and could maintain simple production and supply chains. Don’t waste Your Time Searching For a Sample, Get Your Job Done By a Professional Skilled Writer. University of New South Wales • FINS 3625, University of Maryland, College Park • BUFN 750, Case Study Questions - Parts I and II - September 2011. Mainly sold in department stores, specialty retailers, wholesalers and independent distributors. For making a decision regarding the acquisition being appropriate or not, the facts and side effects of acquisition should be considered first. we assume risk free rate is 5%, and risk premium as the historically one 4.3%. 42% of revenue from athletic shoes and balance from casual footwear. We have conduct some simulation in the spreadsheet, we can find the present value of Mercury is very sensitive to cost of capital, under basic model if the cost of capital reduce to 10%, the value will rise up to 304,882. – (Capital Expenditures – Depreciation) Good at inventory management in the industry. Mercury Athletic Footwear Active Gear, Inc. is a privately held footwear company with $470. How would you recommend modifying them? ?Mercury Footwear Questions. Fundamental Analysis Of Larsen & Toubro Ltd. Mercury Athletic Footwear: Valuing the Opportunity, Financial Analysis on Aftab Automobiles Company, Factors That Influence the Capital Structure Decision of the Firm, Self Medication Practices in a Rural Filipino Community. Considering that there are five main channels for analyst forecasts: firm-specific information, macroeconomic information, information revealed by competitors on future prospects, private information about the firm and public information other than earnings, we think Liedtke could find more information from above channles to get more accurate assumption. Youth market, mainly 15 to 25. Mercury Athletic Footwear Case Study John Liedtke head of Active Gear, Inc. (AGI) is contemplating whether to invest in Mercury Athletic a subsidiary of West Coast Fashions (WCF). Department stores, specialty stores, catalogs, discount retailers and internet. 4 a. Estimation of the weighted average cost of capital 5 b. 1. An Overview of the Problem John Liedtke, the head of business development for Active Gear, Inc. wanted to acquire Mercury Athletic, footwear division of WCF. (2) then we need to calculate the terminal value. 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