Interco Harvard Case Solution & Analysis

Interco Case Solution


The Interco Company started its operations in the year 1911, and it appeared as a Shoe Company in the beginning but with the passage of time Interco started its operations in service and consumer industry, and now it is considered as a global company with some famous brands such as Ethan Allen Furniture, Florsheim, etc. The company achieved significant growth through its operations and through its strategic decisions such as merger and acquisitions which helped the company to take a position of market leader in the industry.

interco case solution

interco case solution

The financial position of the company is stable, and it is following the conservative policy of managing working capital as its current ratio is greater than the industry averages which shows that the company has significant financial flexibility which could help the company in future in order to avail the opportunity that could arise in future. The management of the company is focusing on its both short term and long term goals such as achieving higher sales and operating profit targets along with improving the shareholder wealth by maximizing the shareholder's return.

Problem statement:

The management of the company is evaluating the bid offer presented by the City Capital in order to acquire Interco and is considering that either the bid amount of $70 made by the City Capital is appropriate or not.


Stock Price Analysis:

The stock prices of the company are showing seasonal increasing and decreasing trend as in the start of each year stock prices shows increases while at the end of the year it decreases. Therefore the management of the company is concerned about the stock prices as Wall Street analysts estimated that the stock prices would decline at the end of the year 1988 due to the underperforming of the apparel

Projection of free cash flows

The management of the company is concerned about the valuation of the company and is considering that the range of values identified by the Wasserstein, Perella are appropriate or not. For that purpose, the free cash flows method is used. In order to identify the valuation of the company through FCF method, projected cash flows have been calculated by taking certain assumptions such as sales growth rate, operating profit ratio, capital expenditure ratio and working capital ratio.

The projected cash flows are calculated by using two approaches such as upper limit growth rates and lower limit growth rates which could help to identify the range of values that are calculated by the Wateriness, Perella. For both scenario, firstly projected sales are calculated for the next ten years and the 11th year has been taken as a terminal year. After identifying the projected sales, operating profit has been calculated by using upper limit and lower limit growth rates. After calculating the operating profit or earnings before interest and tax, earnings after tax are calculated and then adjusting the values of depreciation, capital expenditure and working capital changes; free cash flows for the next ten years are calculated........................

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