1. Assess Interco's financial performance. Why is the company a target of a hostile takeover attempt?

Interco's overall financial health is relatively healthy. It is highly-liquid as the current ratios are consistently over 3.5, showing that it has plenty of cash to cover any of its current liabilities. Its accounts receivable days indicate that in 1987 it took longer to collect on outstanding accounts while this figure would drop in 1988. The same trend follows with its inventory days, increasing in 1987 and decreasing in 1988, which would signal that its turnover was slower in 1987 and faster in 1988. The accounts payable days increased in 1987 while slightly decreasing in 1988. This is a healthy trend as Interco was able to take …show more content…
The sensitivity analysis provided in Appendix B shows that changes in the projected growth numbers can significantly affect the value of the company.

4. How would you advise the Interco board on the $70 per share offer?

Similar to Wasserstein Perella, we would also advise Interco not to sell. The offer of $70 per share is an insufficient amount and does not reach the price level that is advantageous for Interco to sell. First off, Interco has leverage when it comes to price negotiation with City Capital. The fact that the Rales Brothers formed City Capital with the sole purpose of acquiring Interco shows they will go to great lengths to acquire Interco. In addition, City Capital has already stated they are not only willing, but are also capable of increasing their bid price even higher than $70 per share. Interco is experienced with mergers and acquisitions, and they have the ability to demand a higher price not only because of this, but also because as of August 8, 1988, the day of the board meeting, Interco was trading at $72.50 per share.

5. How would you assess the actions of Interco's board up to August 8, 1988? Wasserstein Perella's? The Rale Brothers'? Drexel Burnham's?

Interco's board decided to reject offers at $64 and $70, respectively. The interest of the board was to increase shareholder value and its own. The board would only accept if the premium offers an upside that they, as a management