Case Project

Case # 1: Valuation
“ Mercury Athletic Footwear : Valuing the Opportunity”

Mercury Athletic Footwear
1. Is Mercury an appropriate target for AGI? Why or why not?
There is sufficient evidence to suggest it will be advantageous for AGI to acquire Mercury Athletics.   Factored into the decision is the lack of information on the work culture both firms currently possess. Culture is important, because if the cultures drastically differ, it could possibly inhibit efficiency and effectiveness of strategic planning. If one culture empowers employees, while the other gives very limited power to employees to make decisions, the other group will be forced to change. Change is often difficult and is viewed negatively by the employees forced to change.
The team still believes there is adequate information from the financial statements and forecasting, that acquiring Mercury is appropriate. Both firms strive in opposing target markets and since the markets differ so greatly, AGI should not experience a measurable amount of cannibalism. Diagram 1 displays revenue and the market advantage of each company. The revenues are comparable, and through the acquisition, they will have more leverage with producers.

2. Review the projections formulated by Liedtke. Are they appropriate? How would you recommend modifying them?
The biggest assumption in this model is using Constant Annual Growth Rate as the market risk or expected return in the CAPM model. CAGR is a great formula for evaluating how different investments have performed. Investors can compare the CAGR in order to evaluate how well one stock performed against other stocks in a peer group or against a market index. Due to the fact that it is used to compare against a market index, makes it a substitute. The intended purpose of calculating the market premium is to estimate the additional risk or cost between the market risk and the risk free rate. Market index is the...