Mercury Athletic Footwear: Value the Opportunity

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BUSI 740 CASE STUDY Mercury Athletic Footwear: Value the Opportunity Group #3 Fu Yao Guo Peixuan Ma Yifan Fei Yunshu 2 Executive Summary AGI is a generally successful footwear company especially in operating volatility and supply chain management. But it has a relatively low growth rate partly because it faces competitive market and its small market size was becoming more of a disadvantage. One thing is that they suffer from outsourcing supplier conflicts. Contrast to that, Mercury Athletic Footwear is a subsidiary of a large clothing company and yield large revenue even though it is very small. Besides Mercury has a high growth rate and good relation with outsourcing manufactories. Considering all above AGI wants to acquire Mercury and it needs further financial analysis and valuation. An Overview After using Weighted Average Cost of Capital to estimate the value and terminal value of Mercury Athletic Footwear, we find out it is appropriate for AGI to do this acquisition besides qualitative analysis. But to be more precise we need to take other factors into consideration such as scale effect, which would increase the firm value after acquisition. 3 Analysis 1. Is Mercury an appropriate target for AGI? Why or why not? Mercury is an appropriate target for AGI. First we summarized basic performances of both Mercury and AGI. Although Mercury has much smaller market portion, its revenue is almost near the AGI with much higher growth rate. Also Mercury athletic shoes compensate a large revenue portion while AGI is kind of weak in this line. So take Mercury under its line may boost athletic shoes revenue. AGI Mercury Athletic Revenue $470286 m $431121 m % of revenue sources 42% athletic/ 58% casual 79% athletic/21% casual Operation income $60.4 $42.299 Revenue growth 2--6% 12.50% Besides AGI now suffers from large supplier concentration and

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