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Mercury Athletic Footwear Case Study: Corporate Valuation - Essay Example

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Mercury Athletic Footwear Case Study: Corporate Valuation

So John Liedtke would have to be very careful and strategic in his negotiation. This is a company whose growth has been faltering at best and there would be need to not only redesign but to totally restructure it in order to ensure that the expected profitability is achieved. So the negotiating tactic would involve pointing out the reasons that led to the disappointing performance of Mercury and the decision to sell it in the first place. The company has not been pulling its weight in West Coast Fashionsstable, a cat that is borne by its disappointing profit margins (Falk and Hagman 2002). Competition in branded footgear is cut-throat and trying to sell branded sporting footwear is even more tricky as it has to combine the fickleness of fashion apparel with the practicality and purposefulness of sporting wear, a factor that contributed to Mercury’s dismal performance especially in the ladies casual footwear department. Active Gear would have to point this out as a major impediment in their future marketing products that they acquire from the West Coast Fashions group. There is also need to consolidate manufacturers in Asia. The more split up the manufacturers an manufacturing plants the higher the maintenance costs and lower the profit margins so Active Gear would have to aggressively work on rationalizing and improving the efficiency of the manufacturing plants overseas and integrating them with their own existing ones. Staffing costs are also always a sticking point when it comes to acquiring new firms and Active Gear would have to bear the costs of reorganizing as well as restructuring staffing levels at the new outfit not only to make it conform with Active Gear’s own existing staff and staffing levels but also do this without adversely affecting productivity and staff morale which is always a challenge. Then there are the costs associated with layoffs and redundancies that would certainly have to be factored in. From the attached tables the lowest offer that AG would make for Mercury would be $300 million based on past performance and the expected revenues. The highest price that Active Gear should pay for Mercury is $330 million (Falk and Hagman 2002). The long term prospects of the major are the main driving force for this acquisition as the short term prospects coupled with the massive reorganization that would have to be done to integrate Mercury products into Active Gear’s own schedules, marketing and planning would take a long time. The Discount Rate used for this calculation took into account the EBIT margin of 9% and expected revenue growth of 3%.So Lietdke’s major tack would be to point out all the work that would need to be done to make the acquisition [profitable for Active Gear while pointing out the expected rise in income that all these measures would result in if they were to be successful. The outsourcing of manufacturing to China which has become increasing popular with American manufacturers has both gainers and losers. The major players who gain with this sort of outsourcing are the American companies which are able to keep their production prices relatively low and thus produce products that can be more competitively priced and which results in higher profits. The other gainers in this process are the Chinese manufacturing plants whose staffs are employed in these plants. They are able to maintain jobs and keep themselves in employment at the expense of American factory workers who would ...Show more


Mercury Athletic Footwear Case Study: Corporate Valuation First name, last name Subject Professor Submission Date Mercury Athletic Footwear Case Study: Corporate Valuation Takeovers of existing companies and especially a manufacturing company are fraught with uncertainty and a great degree of grey areas…
Author : nicholausswania
Mercury Athletic Footwear Case Study: Corporate Valuation essay example
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