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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.
Page 1
Copyright
Page 2
Exhibit 1
Exhibit 1
Harvey Saligman
Harry M. Krogh
Ronald L. Aylward
R. Stuart Moore
Mark H. Lieberman
Richard B. Loynd
Zane E. Barnes
Donald E. Lasater
Lee M. Liberman
Chairman of the Board, President, CEO and director of Laclede Gas Compa
Robert H. Quenon
William E. Cornelius
Marilyn S. Lewis
Thomas H. O'Leary
Vice Chairman of the Board and director of Burlington Northern Inc., a hold
As of April 15, 1988 all directors, nominees and officers of Interco, as a group (24 persons) beneficially owne
Page 3
Exhibit 1
ercantile Bancorporation, Inc., a bank holding company, and Chairman of the Board and director of Mercantile Bank Nationa
lington Northern Inc., a holding company with transportation, energy and natural resources concerns
4 persons) beneficially owned 1.14% of the outstanding shares of Interco's common stock.
Page 4
Exhibit 1
rces concerns
Page 5
Exhibit 2
Exhibit 2
Subsidiaries
Page 6
Exhibit 3
Exhibit 3
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
$35.13
39
39.25
39.625
43.5
47.188
41.375
43.75
40
43.75
44.125
36.875
1987
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
39.75
42.625
44.125
39.625
40.125
45.375
51.25
53.25
47.5
36
30
32.25
1988
29-Jan-88
29-Feb-88
31-Mar-88
29-Apr-88
31-May-88
30-Jun-88
29-Jul-88
37.125
42
42
41.125
43.875
44.75
68.5
Page 7
Exhibit 4
Exhibit 4
$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
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
Page 8
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
Exhibit 4
29-Jun-88
30-Jun-88
44
44.75
Page 9
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
1986
1987
$16,856
127,341
402,225
647,116
$16,631
63,747
446,755
733,907
$20,849
11,033
486,657
805,095
22,547
25,614
35,665
$1,216,085
$1,286,654
$1,359,299
26,770
437,812
320,256
784,838
343,018
441,820
32,266
465,811
364,499
862,576
377,226
485,350
32,525
471,787
380,402
884,714
405,215
479,499
99,238
$1,756,893
153,383
$1,925,387
146,788
$1,985,586
--
$68,840
$70,517
9,647
11,915
8,172
184,032
12,699
$249,587
216,365
17,327
$358,226
239,513
4,402
$373,343
127,409
135,019
257,327
56,495
43,249
50,546
55,381
41,813
61,766
Shareholders' Equity:
Page 10
1988(a)
Exhibit 6
Preferred stock, no par value
Common stock, $3.75 stated value
Capital surplus (41,356,847
shares issued)
Retained earnings
Less 5,173,811 treasury shares
Total Shareholders' Equity
Total Liabilities and Net Worth
66,027
163,765
61,795
163,643
57,113
155,088
104,205
1,027,895
1,361,892
81,739
1,280,153
$1,756,893
98,246
1,099,006
1,422,690
96,475
1,326,215
$1,925,387
44,539
1,179,964
1,436,704
185,367
1,251,337
$1,985,586
Page 11
Exhibit 6
1987
1988
$29,700
57,789
431,743
786,792
$19,622
16,366
460,759
872,135
25,622
44,959
$1,331,646
$1,413,841
868,670
386,762
481,908
890,887
412,332
478,555
149,170
$1,962,724
146,878
$2,039,273
$97,297
$146,016
9,288
8,900
278,847
15,294
$400,726
292,051
5,463
$452,430
133,403
255,279
49,270
56,410
40,032
63,484
Page 12
Exhibit 6
61,285
155,088
36,721
155,088
49,149
1,111,527
1,377,049
54,134
1,322,915
$1,962,724
32,117
1,194,884
1,418,810
190,762
1,228,048
$2,039,273
Page 13
Exhibit 7
Exhibit 7
INTERCO
Consolidated Statement of Earnings
($000s)
Year Ended February 28,
1986
1987
1988(a)
$2,832,384
36,140
2,868,524
$2,946,902
32,175
2,979,077
$3,341,423
29,237
3,370,660
$781,421
6,293
787,714
1,932,258
2,000,423
2,284,640
522,759
681,886
25,523
712,861
28,082
799,025
33,535
199,145
7,351
2,639,667
2,741,366
3,117,200
729,255
228,857
109,008
237,711
111,937
253,460
108,457
52,276
25,276
$119,849
$125,774
$145,003
$26,514
Operating income(b)
218,240
233,618
257,758
53,334
267,756
287,133
319,275
Income:
Net sales
Other income
Costs and Expenses:
Cost of sales
Selling, general and
administrative expenses
Interest expense
Page 14
Exhibit 7
$778,107
6,864
784,971
522,942
201,129
9,179
733,250
51,904
25,762
$30,689
54,219
-
Page 15
Exhibit 8
Exhibit 8
1986
1987
1988
$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
$66,716
32,085
48,475
105,111
$252,387
$47,269
40,610
52,136
123,766
$263,781
$20,240
39,101
92,204
149,090
$300,635
($670)
14,136
15,777
38,319
$67,562
$36,140
(34,147)
$32,175
(30,163)
$29,237
(42,877)
$6,293
(14,228)
254,380
(25,523)
265,793
(28,082)
286,995
(33,535)
59,627
(7,351)
Operating Earnings:
Apparel
General retail
Footwear
Furniture
Total
Other income
Corporate expense
Earnings before interest
and taxes
Interest expense
Earnings before
income taxes
$228,857
$237,711
$253,460
Corporate Assets
Total
$456,972
234,004
291,292
618,980
$1,601,248
$465,601
248,639
497,706
640,106
$1,852,052
$425,350
252,195
595,861
688,853
$1,962,259
155,645
73,335
23,327
$1,756,893
$1,925,387
$1,985,586
Page 16
$52,276
Exhibit 8
Depreciation Expense:
Apparel
General retail
Footwear
Furniture
$11,965
8,294
8,286
20,971
$12,123
9,079
10,638
21,675
$12,521
9,681
13,107
26,208
$13,433
6,169
8,114
27,278
$8,869
8,167
7,486
24,720
$9,220
10,735
9,236
36,188
Capital Expenditures:
Apparel
General retail
Footwear
Furniture
Page 17
Exhibit 8
$138,836
149,209
226,672
263,390
$778,107
($247)
12,498
19,700
32,196
$64,147
$6,864
(9,928)
61,083
(9,179)
$51,904
Page 18
Exhibit 8
Page 19
Exhibit 9
Exhibit 9
Date:
8-Aug-88
$70.00
17.90%
59.10%
137.30%
17.20%
Value of equity
$2,622.8MM
Net debt
318.5MM
Value of firm
$2,941.3MM
Sales
Value of Firm
as a Multiple of:
Operating
Cash Flow
Operating
Income
0.9x
9.2x
11.4x
0.9
8.8
10.7
Source: Adapted with minor modifications in terminology from Wasserstein, Perella & Co., Inc. presentation
to the Interco Board of Directors, August 8, 1988. Civil Action No. 10111, filed in the Court of Chancery
of the State of Delaware in and for New Castle County, Exhibit 23.
(a) Premiums based on stock prices as of July 27, 1988
Page 20
Exhibit 9
Value of Equity
as a Multiple of:
Net
Book
Income
Value
18.1x
2.2x
17
2.2
Page 21
Exhibit 10
Exhibit 10
# Deals(a)
1Q 1988
19
62.30%
95.50%
159.50%
16.70%
2Q 1988
68.60%
91.30%
182.80%
31.50%
3Q 1988(b)
12
36.50%
49.90%
181.30%
2.60%
1988
40
56.00%
80.90%
171.30%
15.80%
17.90%
59.10%
137.30%
17.20%
Rales
Source: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. Civi
No. 10111, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23.
(a) Wasserstein, Perella & Co., Inc. selected tender offers
(b) Selected tender offers from the months of July and August
Page 22
Exhibit 10
Week High
Page 23
Exhibit 11
Exhibit 11
Announcement
Date
Acquiror/Target
Aggregate
Price ($MM)(a)
Net
Income
12/14/1987
La-Z-Boy/Kincaid
$63.50
22.0x
2.1x
11/17/1986
INTERCO/Lane
523.7
19.3
2.8
8/12/1986
Chicago Pacific/
General Mills Furniture
89.3
14.1
1.8
6/3/1986
Masco/Henredon
260.9
31.6
2.6
8/8/1988
Rales Proposal
$2,941.30
18.1x
2.2x
Source: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. Civi
Action No. 10111, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhi
(a) Sales, operating income, and operating cash flow multiples adjusted for the value of net debt outstandin
(b) Book value adjusted for intangibles
Announcement
Date
Acquiror/Target
Aggregate
Price ($MM)(a)
Net
Income
4/25/1988
NIKE/Cole Haan
$95.00
36.2x
N.M.
6/3/1987
Moacq/Morse Shoe
312.5
2.5
1.8
3/10/1987
Reebok/AVIA
191
40.6
6.7
Page 24
Exhibit 11
9/18/1986
Reebok/Rockport
146.1
30.7
N.M.
7/31/1986
INTERCO/Converse
202.7
37.1
1.8
8/8/1988
Rales Proposal
$2,941.30
18.1x
2.2x
Source: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. Civi
Action No. 10111, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhi
(a) Sales, operating income, and operating cash flow multiples adjusted for the value of net debt outstandin
(b) Book value adjusted for intangibles
Exhibit 11 (continued)
Apparel Companies
Announcement
Date
Acquiror/Target
Aggregate
Price ($MM)(a)
Net
Income
$157.40
N.M.
1.6x
129.7
N.M.
1.4
3/17/1986
W Acquisition/Warnco
504.7
21
2.5
11/4/1985
551.9
19.6
1.5
Rales Proposal
$2,941.30
18.1x
2.2x
8/8/1988
Source: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. Civi
Action No. 10111, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhi
(a) Sales, operating income, and operating cash flow multiples adjusted for the value of net debt outstandin
(b) Book value adjusted for intangibles
Page 25
Exhibit 11
Central Hardware Division
Announcement
Date
Acquiror/Target
6/24/1988
8/8/1988
Aggregate
Price ($MM)(a)
Net
Income
Management Group/
Payless Cashways
$1,189.40
22.0x
2.3x
Rales Proposal
$2,941.30
18.1x
2.2x
Source: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. Civi
Action No. 10111, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhi
(a) Sales, operating income, and operating cash flow multiples adjusted for the value of net debt outstandin
(b) Book value adjusted for intangibles
Exhibit 11 (continued)
Business
Segment
Apparel
General retail
Footwear
Furniture
Business
Segment
Apparel
1988
Sales
$813.20
532.3
890.4
1,105.60
Multiple
Range
.4 - .9
.6 - .6
.5 - 2.1
.8 - 2.1
Value
Range
$ 731.9
319.4
1,869.8
2,321.8
$5,242.9
Median
Value
$569.20
319.4
1,335.60
1,437.30
3,661.50
1988
Operating
Income
Multiple
Range
Value
Range
Median
Value
$20.20
10.6 - 24.0
$ 214.1 - $ 484.8
$214.10
Page 26
Exhibit 11
General retail
Footwear
Furniture
Business
Segment
Apparel
General retail
Footwear
Furniture
39.1
92.2
149.1
13.1 - 13.1
13.0 - 26.0
11.1 - 20.3
1988
Operating
Cash Flow
Multiple
Range
$32.70
48.8
105.3
175.3
9.2 - 13.7
9.2 - 9.2
9.2 - 23.9
8.1 - 15.8
Page 27
512.2
1,198.6
$1,655.0
$3,579.9
- 512.2
- 2,397.2
- $3,026.7
- $6,420.9
Value
Range
$ 448.0
448.9
2,516.7
$2,769.7
$6,183.3
512.2
2,268.10
1,766.80
$4,761.20
Median
Value
$300.80
448.9
970.7
1,709.20
$3,429.60
Exhibit 11
Operating
Cash Flow
0.8x
11.7x
8.1x
1.6
11.1
9.6
12
9.9
2.1
20.3
15.8
0.9x
11.4x
9.2x
Operating
Cash Flow
1.5x
14.1
12.2
0.5
13
9.2
2.1
24.6
23.3
Page 28
Exhibit 11
1.7
26
23.9
0.9
24.7
18.2
0.9x
11.4x
9.2x
Operating
Cash Flow
0.8x
24.0x
13.7x
0.4
N.M.
N.M.
0.9
10.6
9.2
0.6
10.6
9.2
0.9x
11.4x
9.2x
Page 29
Exhibit 11
Operating
Cash Flow
0.6x
13.1x
9.2x
0.9x
11.4x
9.2x
Page 30
Exhibit 11
Page 31
Exhibit 12
Exhibit 12
Assumptions
Sales growth(a)
Operating margin range(b)
Capital expenditures(c)
Increase in working investment
7.70%
6.30%
7.10%
13.1%-14.1%
9.1%-10.4%
6.4%-7.0%
1x
1x
1x
12.50%
12.50%
12.50%
Tax rate
4,746.00
5,085.00
5,424.00
$80.00
74
68
63
$84.00
77
72
66
$88.00
81
75
69
Source: Adapted with minor modifications in terminology from Wasserstein, Perella & Co., Inc. presentation
Board of Directors, August 8, 1988. Civil Action No. 1011, filed in the Court of Chancery of the State of Dela
for New Castle County, Exhibit 23.
(a)
(b)
(c)
(d)
Page 32
Exhibit 12
Retail Group
Total
7.60%
7.20%
6.5%-7.5%
9.2%-10.1%
1x
1x
7.50%
11.60%
41.00%
Page 33
Exhibit 13
Exhibit 13
Reference Range; Retain Core Companies Case ($ millions Except Per Share)
Segment
Furniture Group
Footwear Group
Total
After-tax Divestiture Proceeds
Net Corporate Adjustments(a)
Range
Per Share Range(b)
Range
$1,525 - $1,750
775 -
900
$2,300 - $2,650
$ 588 - $ 639
(335) -
(273)
$2,553 - $3,016
$68.00 - $80.00+
Source: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. Civi
Action No. 1011, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhib
(a) Accounts for net debt, overfunded pension and miscellaneous other assets that include real estate whic
(b) Based on 37.5 million fully-diluted shares outstanding
Page 34
Exhibit 13
rs, August 8, 1988. Civil Action No. 1011, filed in the Court of Chancery of the State of Delaware in and for New Castle Cou
ew Castle County, Exhibit 23.
include real estate which could be understated
Page 35
Exhibit 13
Page 36
Exhibit 14
Exhibit 14
7.83%
8.87
9.01
9.10
AAA
AA
A
BBB
9.50%
9.65
9.80
10.10
Page 37