Mercury Case

A) Is Mercury an appropriate target for AGI? Why or why not?

There are characteristics of Mercury that make it an appropriate target, and some that make it not. The different characteristics presented in the case are as follows:

Acquisition appropriate:

* Same industry/similar products, and Mercury does their manufacturing in China (Pg 4) like AGI, so Mercury would increase the leverage with contract manufacturers (Pg 1), which helps since AGI does most of it’s manufacturing in China, and China just had a recent wave of consolidation among Chinese contract manufacturers which gave the Chinese more leverage over AGI (Pg 3) * The merger would expand AGI’s presence with key retailers and distributers (Pg 1) …show more content…
Also, Liedtke says contradicting statements when he talks about keeping the women’s casual line and folding it into AGI’s women’s casual line, but he also talks of writing off Mercury’s women’s casual line as well. In Liedtke’s performance projection for 2007-2011 he writes off the women’s line starting from 2008 and until 2011. Because of this, there is a drop in revenue that lowers the enterprise value. This might be done so Liedtke can get a better price on the initial acquisition purchase and then once he buys the company, he will then fold the women’s line into AGI’s, which will then have a higher rate of return than projected to the sellers. C) Estimate the value of Mercury using a discounted cash flow approach and Liedtke’s base case projections.

To start with, this is a valuation done by Joel L. Heilprin for Mercury when the WACC is 11.06% and the long run growth rate is projected at 2.78%:

However, my DCF that I calculated uses a WACC of 8.73% and a long-term growth rate of 3%. Though the difference from Heilrpin is substantial, it reflects the possible different values such as the treasury securities date that I chose, though I can’t see what the values of Heilrpin’s are to compare.

Here is my DCF, but please refer to the excel file for all the formulas and values I used to come up with this end result:

Here are some of the other calculations I used to arrive to this enterprise value of Mercury:

D) Do you regard the value you