Professional Documents
Culture Documents
INTERCO HARVARD BUSINESS SCHOOL Case Software 2-296-720 Copyright 1991 by the President and Fellows of Harvard College. Research Associate Susan L. Rother prepared this case under the supervision of Professor Scott P. Mason as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
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Copyright
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Exhibit 1
Exhibit 1
Harvey Saligman Harry M. Krogh Ronald L. Aylward R. Stuart Moore Mark H. Lieberman Richard B. Loynd Charles J. Rothschild, Jr. Zane E. Barnes Donald E. Lasater Lee M. Liberman Robert H. Quenon William E. Cornelius Marilyn S. Lewis Thomas H. O'Leary
Chairman of the Board and CEO of Interco President and COO of Interco Vice Chairman of the Board of Interco Vice President of Interco; President of The Lane Company, Inc., a subsidiary of Interco Vice President of Interco; President of Londontown, a division of Interco
Vice President of Interco; Chairman of the Board of Converse, Inc., a subsidiary of Interco
Vice President of Interco; Chairman of the Board of Megastar Apparel Group, a division of
Chairman of the Board, President, CEO and director of Southwestern Bell Corporation, en
Chairman of the Board, CEO and director of Mercantile Bancorporation, Inc., a bank holdi
Chairman of the Board, President, CEO and director of Laclede Gas Company, a gas pub
President, CEO and director of Peabody Holding Company, Inc., which is engaged in coal President, CEO and director of Union Electric Company, an electric public utility Civic leader and volunteer
Vice Chairman of the Board and director of Burlington Northern Inc., a holding company w
As of April 15, 1988 all directors, nominees and officers of Interco, as a group (24 persons) beneficially owned 1.14% of the
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Exhibit 1
sion of Interco
ncorporation, Inc., a bank holding company, and Chairman of the Board and director of Mercantile Bank National Association
hern Inc., a holding company with transportation, energy and natural resources concerns
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Exhibit 1
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Exhibit 2
Exhibit 2
Subsidiaries
Abe Schrader Corp. Big Yank Corp. Bowen Shoe Co., Inc. Broyhill Furniture Industries, Inc. Campco Holdings, S.A. Campus Pacific Ltd. Central Hardware Co. Clayton Operations, S.A. College-Town, Inc. Converse Inc. Delmar Sportswear, Inc. Ethan Allen Inc. Factory Outlet Co. Fine's Men's Shops, Inc. Florsheim Inc. Florsheim Shoe Store Co. of Hawaii Florsheim Shoe Store Co.Midwest Florsheim Shoe Store Co.Northwest Florsheim Shoe Store Co.South Florsheim Shoe Store Co.West Golde's Department Stores, Inc. Grand Entry Hat Corp. Highland House, Inc. Highland Transport, Inc. Hy-Test, Inc. Interco Subsidiary, Inc. Keith O'brien Investment Co. Lane Co., Inc. Lease Management, Inc. Julius Marlow Holdings, Ltd. L. J. O'neill Shoe Co. ORC Financial Ag Patriot Investment Co. Queen Casuals, Inc. Senack Shoes, Inc. Sky City Stores, Inc. Stuffed Shirt Inc. United Shirt Distributors, Inc. Walton Road Management Co.
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Exhibit 3
Exhibit 3
Month End Prices (adjusted for stock splits) 1986 31-Jan-86 28-Feb-86 31-Mar-86 30-Apr-86 30-May-86 30-Jun-86 31-Jul-86 29-Aug-86 30-Sep-86 31-Oct-86 28-Nov-86 31-Dec-86 30-Jan-87 27-Feb-87 31-Mar-87 30-Apr-87 29-May-87 30-Jun-87 31-Jul-87 31-Aug-87 30-Sep-87 30-Oct-87 30-Nov-87 31-Dec-87 29-Jan-88 29-Feb-88 31-Mar-88 29-Apr-88 31-May-88 30-Jun-88 29-Jul-88 $35.13 39 39.25 39.625 43.5 47.188 41.375 43.75 40 43.75 44.125 36.875 39.75 42.625 44.125 39.625 40.125 45.375 51.25 53.25 47.5 36 30 32.25 37.125 42 42 41.125 43.875 44.75 68.5
1987
1988
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Exhibit 4
Exhibit 4
Daily Closing Prices 2-May-88 3-May-88 4-May-88 5-May-88 6-May-88 9-May-88 10-May-88 11-May-88 12-May-88 13-May-88 16-May-88 17-May-88 18-May-88 19-May-88 20-May-88 23-May-88 24-May-88 25-May-88 26-May-88 27-May-88 30-May-88 31-May-88 1-Jun-88 2-Jun-88 3-Jun-88 6-Jun-88 7-Jun-88 8-Jun-88 9-Jun-88 10-Jun-88 13-Jun-88 14-Jun-88 15-Jun-88 16-Jun-88 17-Jun-88 20-Jun-88 21-Jun-88 22-Jun-88 23-Jun-88 24-Jun-88 27-Jun-88 28-Jun-88 29-Jun-88 30-Jun-88 $40.25 41.5 41 41.625 40.625 40.875 41.75 41.625 42 42.125 42.25 42 41.5 40.625 40.625 40.375 41.5 42.5 42.625 41.25 N.A. 43.875 43.5 42.875 44.125 43.25 42 43.875 43.375 43.375 43.5 43.625 42.5 42.875 43.625 43.25 43.125 43.75 43.625 43.5 43.625 44 44 44.75 1-Jul-88 4-Jul-88 5-Jul-88 6-Jul-88 7-Jul-88 8-Jul-88 11-Jul-88 12-Jul-88 13-Jul-88 14-Jul-88 15-Jul-88 18-Jul-88 19-Jul-88 20-Jul-88 21-Jul-88 22-Jul-88 25-Jul-88 26-Jul-88 27-Jul-88 28-Jul-88 29-Jul-88 1-Aug-88 2-Aug-88 3-Aug-88 4-Aug-88 5-Aug-88 8-Aug-88 44.625 N.A. 45.375 44.5 44.625 45 45.25 45.375 46.375 49 54.375 54.5 58.375 58.125 57.875 57.25 58 58.875 59.375 67.75 68.5 68.875 67.625 67 67.375 68.25 72.5
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Exhibit 4
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Exhibit 6
Exhibit 6
INTERCO Consolidated Balance Sheet ($000s except per share data) February 28, Current Assets: Cash Marketable securities Receivable, net Inventories Prepaid expenses and other current assets Total current assets Property, Plant and Equipment: Land Buildings and improvements Machinery and equipment Less accumulated depreciation Net Property, Plant and Equipment Other Assets Total Assets Current Liabilities: Notes payable Current maturities of longterm debt and capital lease obligations Accounts payable and accrued expenses Income taxes Total Current Liabilities Long-term debt, less current maturities Obligations under capital leases, less current maturities Other long-term liabilities Shareholders' Equity: Preferred stock, no par value Common stock, $3.75 stated value Capital surplus (41,356,847 shares issued) 1986 1987 1988(a) 1987
--
$68,840
$70,517
$97,297
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Exhibit 6
Retained earnings Less 5,173,811 treasury shares Total Shareholders' Equity Total Liabilities and Net Worth
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Exhibit 6
1988
$146,016
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Exhibit 6
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Exhibit 7
Exhibit 7
INTERCO Consolidated Statement of Earnings ($000s) Year Ended February 28, Income: Net sales Other income Costs and Expenses: Cost of sales Selling, general and administrative expenses Interest expense 1986 1987 1988(a) First Quarter Ended May 31, 1987 1988
$2,946,902 32,175 2,979,077 2,000,423 712,861 28,082 2,741,366 237,711 111,937 $125,774
$3,341,423 29,237 3,370,660 2,284,640 799,025 33,535 3,117,200 253,460 108,457 $145,003
$781,421 6,293 787,714 522,759 199,145 7,351 729,255 52,276 25,276 $26,514
$778,107 6,864 784,971 522,942 201,129 9,179 733,250 51,904 25,762 $30,689
Earnings before income taxes228,857 Income taxes 109,008 Net earnings $119,849
218,240 267,756
233,618 287,133
257,758 319,275
53,334 -
54,219 -
Source: Annual report and 10Q (a) For the year ended February 29, 1988 (b) Operating income equal to the sum of earning before income taxes and interest expense less other income (c) Operating cash flow equal to the sum of operating income and depreciation expense
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Exhibit 7
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Exhibit 8
Exhibit 8
1986
1987
1988
Net Sales to Unaffiliated Customers: Apparel General retail Footwear Furniture Total $907,833 461,785 558,286 904,480 $2,832,384 $817,660 498,324 663,521 967,397 $2,946,902 $813,198 532,251 890,411 1,105,563 $3,341,423 $160,339 148,138 209,535 263,409 $781,421 $138,836 149,209 226,672 263,390 $778,107
Operating Earnings: Apparel General retail Footwear Furniture Total Other income Corporate expense Earnings before interest and taxes Interest expense $66,716 32,085 48,475 105,111 $252,387 $36,140 (34,147) 254,380 (25,523) $47,269 40,610 52,136 123,766 $263,781 $32,175 (30,163) 265,793 (28,082) $20,240 39,101 92,204 149,090 $300,635 $29,237 (42,877) 286,995 (33,535) ($670) 14,136 15,777 38,319 $67,562 $6,293 (14,228) 59,627 (7,351) ($247) 12,498 19,700 32,196 $64,147 $6,864 (9,928) 61,083 (9,179)
$228,857
$237,711
$253,460
$52,276
$51,904
Identifiable Assets at Year End: Apparel General retail Footwear Furniture $456,972 234,004 291,292 618,980 $1,601,248 155,645 $1,756,893 $465,601 248,639 497,706 640,106 $1,852,052 73,335 $1,925,387 $425,350 252,195 595,861 688,853 $1,962,259 23,327 $1,985,586
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Exhibit 8
Capital Expenditures: Apparel General retail Footwear Furniture $13,433 6,169 8,114 27,278 $8,869 8,167 7,486 24,720 $9,220 10,735 9,236 36,188
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Exhibit 8
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Exhibit 9
Exhibit 9
Date: Price per share: Premium to stock one-day prior(a) Premium to stock one-month prior: Premium to 52-week low: Premium to 52-week high: Value of equity Net debt Value of firm
Sales
Operating Income
0.9x 0.9
9.2x 8.8
11.4x 10.7
18.1x 17
Source: Adapted with minor modifications in terminology from Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. Civil Action No. 10111, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23. (a) Premiums based on stock prices as of July 27, 1988
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Exhibit 9
2.2x 2.2
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Exhibit 10
Exhibit 10
Average Premium Paid over Stock Price One Day 4 Weeks 52-Week Low 52-Week High 62.30% 68.60% 36.50% 56.00% 17.90% 95.50% 91.30% 49.90% 80.90% 59.10% 159.50% 182.80% 181.30% 171.30% 137.30% 16.70% 31.50% 2.60% 15.80% 17.20%
Source: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. Civil Action No. 10111, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23. (a) Wasserstein, Perella & Co., Inc. selected tender offers (b) Selected tender offers from the months of July and August
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Exhibit 10
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Exhibit 11
Exhibit 11
Net Income
La-Z-Boy/Kincaid INTERCO/Lane Chicago Pacific/ General Mills Furniture Masco/Henredon Rales Proposal
$63.50 523.7
22.0x 19.3
2.1x 2.8
0.8x 1.6
1 2.1 0.9x
6/3/1986 8/8/1988
Source: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. Civil Action No. 10111, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23. (a) Sales, operating income, and operating cash flow multiples adjusted for the value of net debt outstanding (b) Book value adjusted for intangibles
Net Income
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Exhibit 11
7/31/1986 8/8/1988
202.7 $2,941.30
37.1 18.1x
1.8 2.2x
0.9 0.9x
Source: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. Civil Action No. 10111, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23. (a) Sales, operating income, and operating cash flow multiples adjusted for the value of net debt outstanding (b) Book value adjusted for intangibles
Net Income
4/28/1988 Wesray/William Carter 2/2/1988 Salant/Manhattan Indus. 3/17/1986 W Acquisition/Warnco 11/4/1985 West Point Pepperall/ Cluett, Peabody 8/8/1988 Rales Proposal
N.M. N.M. 21
551.9 $2,941.30
19.6 18.1x
1.5 2.2x
0.6 0.9x
Source: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. Civil Action No. 10111, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23. (a) Sales, operating income, and operating cash flow multiples adjusted for the value of net debt outstanding (b) Book value adjusted for intangibles
Announcement
Aggregate
Net
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Exhibit 11
Date
Acquiror/Target
Price ($MM)(a)
Income
Value(b)
Sales
6/24/1988
$1,189.40 $2,941.30
22.0x 18.1x
2.3x 2.2x
0.6x 0.9x
8/8/1988
Source: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. Civil Action No. 10111, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23. (a) Sales, operating income, and operating cash flow multiples adjusted for the value of net debt outstanding (b) Book value adjusted for intangibles
Exhibit 11 (continued)
Business Segment
1988 Sales
Multiple Range
Value Range
Median Value
.4 - .9 .6 - .6 .5 - 2.1 .8 - 2.1
$ 325.3 - $ 731.9 319.4 - 319.4 445.2 - 1,869.8 884.5 - 2,321.8 $1,974.4 - $5,242.9
Business Segment
Multiple Range
Value Range
Median Value
$ 214.1 - $ 484.8 512.2 - 512.2 1,198.6 - 2,397.2 $1,655.0 - $3,026.7 $3,579.9 - $6,420.9
1988
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Exhibit 11
Business Segment
Multiple Range
Value Range
Median Value
$ 300.8 - $ 448.0 448.9 - 448.9 968.8 - 2,516.7 $1,419.9 - $2,769.7 $3,138.4 - $6,183.3
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Exhibit 11
11.7x 11.1
8.1x 9.6
12 20.3 11.4x
debt outstanding
14.1 13 24.6 26
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Exhibit 11
24.7 11.4x
18.2 9.2x
debt outstanding
10.6 11.4x
9.2 9.2x
debt outstanding
Operating
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Exhibit 11
Income
Cash Flow
13.1x 11.4x
9.2x 9.2x
debt outstanding
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Exhibit 12
Exhibit 12
Assumptions
Retail Group
Sales growth(a) Operating margin range(b) Capital expenditures(c) Increase in working investment(d) Tax rate
Multiple of Cash Flow in Year 10 14.0x 15.0x 16.0x Terminal value ($ millions) Implied stock price Discount rate 10.00% 11.00% 12.00% 13.00% 4,746.00 5,085.00 5,424.00
$80.00 74 68 63
$84.00 77 72 66
$88.00 81 75 69
Source: Adapted with minor modifications in terminology from Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. Civil Action No. 1011, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23. (a) (b) (c) (d) Ten-year annual compound growth rate Projected operating margin in 1989 and in 1998 As a multiple of depreciation As a percent of the change in sales in 1994 forward
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Exhibit 12
Total
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Exhibit 13
Exhibit 13
Reference Range; Retain Core Companies Case ($ millions Except Per Share)
Segment
Range
Furniture Group Footwear Group Total After-tax Divestiture Proceeds Net Corporate Adjustments(a) Range Per Share Range(b)
Source: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. Civil Action No. 10 Action No. 1011, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23.
(a) Accounts for net debt, overfunded pension and miscellaneous other assets that include real estate which could be unde (b) Based on 37.5 million fully-diluted shares outstanding
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Exhibit 13
8, 1988. Civil Action No. 1011, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23. ounty, Exhibit 23. estate which could be understated
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Exhibit 13
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Exhibit 14
Exhibit 14
1-year Tresury bills 7-year Tresury bonds 10-year Tresury bonds 30-year Tresury bonds
Corporate Bond Rates at August 5, 1988, (industrial companies) 10-year AAA 10-year AA 10-year A 10-year BBB 9.50% 9.65 9.80 10.10
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