Mercury Athletic Footwear

In order to assess Calaveras’ value, I calculated the free cash flow from 1994 to 1998. The free cash flow from each year derived from adding Earnings before Interest and Taxes,

In estimating the value of Mercury we can use a discounted cash flow (DCF) approach or a comparable firms’ multiples analysis. In using the DCF approach we have to make some assumptions in our analysis along with using data generated in the industry and in Liedtke’s projections.

Estimate the value of Mercury using a discounted cash flow approach and Liedtke’s base case projections.

Obviously, there is a big number of driving forces in the athletic footwear industry. Each of these driving forces has different impacts—some of them can have a more considerable effect than others on figuring out how much cross-company differences influence market shares and a number of units sold. The first line of most influential factors includes comparative prices, S/Q ratings, and a number of models offered among the footwear competitors. These three most important competitive forces affect customer decisions of which athletic footwear brand to choose. Furthermore, the decisions of customers whether to purchase one brand or another are also influenced by such forces as advertising, celebrity endorsements, the number of independent retail

Mercury  Athletic  Footwear   Valuing  the  Opportunity   [Author]   CASE   ANALYSIS         Mercury  Athletic  Footwear     Table  of   Contents   1.   Is  Mercury  an  appropriate  target  for  AGI?   Why  or  why  not?  ............................  3   2.

The sportswear industry provides clothing, including footwear, worn for sport or physical exercise and has now evolved as casual fashion clothing more than athletic wear. In this report I will be talking about Kotler’s macro forces and their effect on the sportswear industry. I will also be comparing two organizations from the industry and evaluating the similarities and differences between them.

c. Estimate the value of Mercury using a discounted cash flow approach and Liedtke’s base case projections.

Everyday, billions of people look down at their feet and squeeze them into a pair of shoes. For probably most of those people in America, when they look down at their feet, they see a shoe with a swoosh on it. This swoosh belongs to no other than one of the most popular sneaker companies, Nike. I decided to look further into this popular shoe company's success. It turns out Nike isn't even one of the oldest shoe companies, but it is less than 60 years old. Nike had to figure out how to become better than just an ordinary sneaker company.

The women's apparel market is highly competitive. With the launch of a new active-wear line from Harrington Collection's, more and more competitors will start to realise the potential value in in producing an active-wear line of their own. The active-wear market is growing so rapidly (expected to double turnover from 2007 to 2009), that eventually all of Harrington's competitors would likely be expected to launch a line of their own, relying on existing brand loyalty and high-scale advertising campaigns to capture market share and move units.

West Coast Fashions, Inc a large business of men’s and women’s apparel decided to dispose of one of their segments; Mercury Athletic. John Liedtke, head of the business development for Active Gear, Inc saw it has a possible opportunity for them to acquire it. The footwear industry is very competitive, with low growth and stable profit margins. AGI is very profitable but it is smaller than its competitors, which is becoming a disadvantage. Therefore, Liedtke believes that if they takeover Mercury will double AGI’s revenue, increase it’s leverage with contract manufactures and expand its presence with key retailers and distributions. Liedtke is evaluating the company in order to find out

Our company in terms of market share, is dominating every other company in the Private Label segment with the exception of Latin America. Our competencies or advantages in the internet segment are as follows: maintaining strong S/Q ratings, offering free shipping, and targeting our customers with advertising. In the wholesale segment, advertising and our S/Q ratings continue to be our competencies, moreover, we also utilize more retailer outlets. Our advertising strategy is to improve our visibility for our shoes, and it is our distinctive competence. In our wholesale segment, by maintaining strong advertising, we are supporting the retailer’s efforts to create brand awareness for our shoes. We use more retailer outlets which aid the advertising, as there is more exposure for our shoes. Our advertising expenditures across the board are higher than that of our competitors in both the internet and wholesale segments. Dream Athletic takes a cost leadership approach as its business strategy, which allows us to drive our costs down while maintaining our production of stylish and quality footwear. The S/Q rating is currently a core competence as our managers seek to increase the S/Q rating in years to come. The lowest S/Q rating in each region and segment is 4, and our highest S/Q rating across our segments and regions is 5. In the last year, we have increased our spending on TQM/sigma six programs to increase our plants efficiency. Our customers per our success in the industry, demand a stylish and quality shoe; therefore, we will continue to improve this core competence and turn it into a distinctive

West Coast Fashions, Inc. a large business of men’s and women’s apparel decided to dispose of one of their segments; Mercury Athletic. John Liedtke, head of the business development for Active Gear, Inc. saw it has a possible opportunity for them to acquire it. The footwear industry is very competitive, with low growth and stable profit margins. AGI is very profitable but it is smaller than its competitors, which is becoming a disadvantage. Therefore, Liedtke believes that if they takeover Mercury will double AGI’s revenue, increase its leverage with contract manufactures and expand its presence with key retailers and distributions. Liedtke is evaluating the company in order to find out whether the future benefits justify or surpass the present value of the investment in Mercury.

The athletic shoe industry stands one of the greatest and most profitable in the world. Currently, global annual athletic footwear revenues stand around $75B per year, with annual US consumers spending close to$20 billion. Unsurprisingly, the largest growth in the industry took place during the 1980’s and 1990’s, during Jordan’s career in which the popularity of athletic and sport oriented casual shoes skyrocketed. Also not alarming is who the dominant player in the athletic footwear market is – Nike. The market share of Nike and Jordan brands combined is routinely measured at close to 50% in this market, proving their sponsorship deal with Jordan in 1984 provided the springboard to which they never have looked back on.

We also calculated the terminal value estimates of Arcadian using a P/E multiples. The expected P/E multiples were provided (15-20) that result from the investment from Sierra Capital, we calculated the PV of the terminal values by using a WACC of 20%. In calculating the terminal value, our team used the last year in the forecast with a 5% nominal rate and discounted it back to present day along with all the other forecasted FCFs. Using P/E multiples, we estimated the terminal value by multiplying the net income for Arcadian in 2014, by 15 and 20 (Exhibit 1). Next, we calculated the total present value with the terminal value plus the negative PV free cash flow. Finally, the equity amount proposed to sell was calculated by 60% of total present value.

Acting as two of the largest companies in the athletic apparel business by market share, both Nike and Under Amour, like the wearers of their products, know how to win. Whether it is the Air Mag, Nikes newest product invention or Under Armours 10 year partnership with Major League Baseball commencing in 2020, each company is taking a different approach to grow their business and become the “it” player in its industry. Although long term strategies devised by Nike CEO Mark Parker and Under Armours Kevin Plank may focus on different growth initiatives, when looked at more closely, one will find the many similarities between both firms. The grounds of comparison and contrast I will be using fall into the categories of product development, brand