Interco On August 8.
1988. Interco’s board of managers met to discourse. among other affairs. a amalgamation proposal from City Capital Associates Limited Partnership.
City Capital had offered $ 64 per common portion of Interco on July 28. 1988. and had raised that offer to $ 70 per portion on the forenoon of August 8. At this board meeting Interco’s fiscal advisers.
Wasserstein. Perella & A ; Co. . established a rating scope of $ 68- $ 80 per common portion of Interco and presented their rating of the offer.
Given their rating.Wasserstein Perella advised the Interco board ( see Exhibit 1 ) that the $ 70 per portion offer was unequal and non in the best involvements of the company and its stockholders. The board of managers voted to reject the City Capital offer. The Company Founded in December 1911.
the International Shoe Company was established as a footwear fabrication concern and remained so until the early sixtiess. In 1966. the company was renamed Interco to reflect the altering character of its concern. It had grown.
into a major maker and retail merchant of a broad assortment of consumer merchandises and services.Among the most well-known of the trade names Interco made were Converse and Florsheim places. Ethan Allen furniture. and London Fog rain cogwheel.
Interco’s assorted operations were well independent and were supported by a corporate direction staff in St. Louis. Missouri. The company’s doctrine had historically been to get companies in related Fieldss and to supply their existing direction squads with the inducements to spread out their concerns while alleviating them of such everyday support maps as fiscal and legal demands.
About half of Interco’s growing had come through acquisition.The company continually sought entities that would complement the bing Interco companies. Extra standards used in testing and choosing acquisition campaigners included the presence of extremely skilled directors and merchandises that had established leading places in their several markets. Equity analysts viewed Interco as a conservative company that was financially “overcapitalized.
” With a current ratio of 3. 6 to 1 and a debt-to-capitalization ratio. including capitalized rentals. of 19.
3 % on February 29. 1988. Interco had ample fiscal flexibleness.This flexibleness had allowed the company to buy back its common portions and do acquisitions as chances arose.
Research Associate Susan L. Roth prepared this instance under the supervising of Professor Scott P. Mason as the footing for category treatment instead than to exemplify either effectual or uneffective handling of an administrative state of affairs. Copyright © 1991 by the President and Fellows of Harvard College.
To order transcripts or bespeak permission to reproduce stuffs. name 1-800-545-7685 or write Harvard Business School Publishing. Boston. MA 02163.
No portion of this publication may be reproduced. stored in a retrieval system. used in a spreadsheet. or transmitted in any signifier or by any means—electronic.
mechanical. run offing. entering. or otherwise—without the permission of Harvard Business School.
Within these four operating divisions were legion independent companies as listed in Exhibit 2. Apparel Manufacturing This group consisted of 11 dress companies that designed. manufactured. and distributed a full scope of branded and private-label athletic wear.
insouciant dress. outer garments. and headwear for work forces and adult females.Apparel trade names included Le Tigre.
Sergio Valente. and Abe Schrader. Distribution was national in range to section shops. forte stores.
and other retail units. including price reduction ironss. General Retail Merchandising This group operated 201 retail locations in 15 provinces. General retailing included big do-it-yourself place betterment centres.
general ware price reduction shops. men’s forte dress stores. and forte section shops. Over the anterior few old ages.
general retail had been greatly scaled back and was now dominated mostly by Central Hardware. do-it-yourself place betterment concatenation that emphasized client service and a wide choice of merchandises.Footwear Manufacturing and Retailing This division designed. manufactured.
and distributed men’s and women’s footwear chiefly in the United States. Australia. Canada. and Mexico.
The group operated 778 retail shoe shops and leased shoe sections in 42 provinces and in Australia. Interco’s two major footwear operations. Converse Inc. and the Florsheim Shoe Co.
. commanded taking places in their several markets: athletic places and men’s traditional footwear.Furniture and Home Furnishings This group manufactured. distributed.
and retailed quality wood and upholstered furniture and place trappingss. Furniture brands included Broyhill. Lane. Ethan Allen.
and Hickory Chair. In recent old ages. furniture had expanded through acquisitions and increasing profitableness to rule Interco’s net income. At the terminal of financial twelvemonth 1988.
Interco was the largest furniture maker in the universe. Strategic Repositioning Program Interco’s ends included long-run gross revenues and net incomes growing. increased return on corporate assets. nd most of import.
improved return on shareholders’ equity.To accomplish these ends. Interco took a four-pronged attack that included bettering the profitableness of bing operations and depriving underperforming assets. doing acquisitions that had the potency for better than mean returns and growing.
and using timeserving fiscal schemes such as portion redemptions and the prudent usage of borrowing capacity. With these ends established. Interco. in 1984.
began a strategic repositioning plan aimed at bettering overall corporate public presentation.As portion of this enterprise. Interco accelerated its attempts to deprive underperforming assets and repositing itself in markets offering superior growing chances and profitableness. The plan resulted in a significant alteration in Interco’s mix of gross revenues as shown in Table A below.
In financial 1988 the furniture and footwear groups together accounted for 60 % of corporate gross revenues. with dress and general retail accounting for the remainder. This was a reversal of the gross revenues distribution in financial 1984.