Mercury Footwear Case Study

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1. Is mercury an appropriate target for AGI? Why or why not? Please clearly cite examples for your reasons. (10 points)
There are many reasons that mercury is an appropriate target for AGI.
• Both companies are in the same industry of footwear products.
• First off the two companies have differentiating strategies and markets that they sell to. AGI will be adding a new market to their company goals and increasing their revenue streams.
• AGI strives in the casual footwear segment with a revenue of 470 million while Mercury is in the Athletic footwear segment making 431 million a year. Taking on Mercury could also help with the growth of AGI as a company due to them trying to keep up with the current trends and fashion within the market
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There will also be easier to set up contracts with foreign manufacturers in Asia for a cheaper price by combing the orders.

2. Review the projections formulated by Liedtke. Are they appropriate? How would you recommend modifying them? (10 points)
• The projections for revenue are higher than past trends could suggest. For example Men’s casual shoes had negative revenue growth in the past few years but in Liedtke’s projections he has the growth increasing 2% then 3% a year later which seems high. Should be more conservative based on past trends.
• Next CAGR is a calculation that Liedke used to find the compound annual growth rate. However this calculation does not include any risks so it does not take systematic risk into account which could cause some problems in the valuation
• Another thing that is somewhat questionable in Liedtke’s projections was how he said he would be integrating the women’s line from Mercury but in the projections sheet he has written off the line which will reduce the revenue for the valuation of mercury.

3. What is the equity beta of Mercury? (5 points)
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Estimate the DCF value of Mercury’s equity using Liedtke’s base case projections. Use the assumptions below in your valuation. (10 points) E=321005

7. Table 1 shows AGI’s DSI is about 70% of Mercury’s 42.5 versus 61.1 days. What would be the effect of reducing Mercury’s DSI to 42.5 days on the value of equity you calculated in table 6? (Hint: recalculate the DCF model incorporating this synergy, and report the new value of equity) (10 points)

Days sales in inventory is better when it is lower. This will be better for the company as a whole if the DIS is shorter because it will increase the amount of money the company will receive given the turnover of the inventory. The effect will be a decrease in inventory and an increase in the sales for the company.

8. Using the market multiples provided in Table 3, what valuations do you get using the EBIT, EBITDA, PE, and BV multiples approach using the average for the industry. (10 points)
EBIT:443210
EBITDA:463734
PE:359072
BV:

9. Do you regard the value you obtained in the DCF as conservative or aggressive? Why? (5 points)

I believe the DCF we obtained is conservative due to two main factors. First we used comparable company information for our valuation and used the averages of those companies in the industry. Secondly we used an EMRP higher than the treasury stock subtracted from the risk that was given at the

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