Cash Flow Analysis Essay examples

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1. Several factors have made Interco an attractive takeover target: 1) Interco’s stock is undervalued due to poor performance in the apparel and general merchandising divisions, which have weakened Interco’s valuation as a whole. 2) As stated by the equity analysts, Interco is an over capitalized company with potential to grow, which makes an acquisition easy to finance. 3) Interco is also a cash generative target for a potential acquirer as it generates approximately $0.10 of operating cash flow for every dollar of sales. 4) The company is also structured in a way that it could be broken up and sold into its constituent parts, which could prove to be worth more than the whole.
2. As a member of the Board of Interco, neither the …show more content…
Additionally, if the management team rejects the bid, it still must execute a restructuring plan in order to unlock the true value of the firm. Given the risk involved with this strategy it is uncertain that they would be able to actually increase Interco’s value.
Upon further analysis, whereby we adjusted for the appropriate growth rate and profit potential of the Apparel division, we have determined that a more accurate valuation range for Interco is $61 - $70/ share. See Discounted Cash Flow Analysis #2 for a revised discounted cash flow analysis and stock value range. As a result, we would advise the board to accept City Capital’s offer based on (i) our revised analysis, (ii) due to the fact that there are no alternative bids for the company and (iii) the risk associated with management’s restructuring plan.
5. The Board - When the Board hired Wasserstein, Perella, & Co. to stop the Rales brothers it appears it neglected its fiduciary responsibility of the shareholders and worked instead in its own best interests. Instead of attempting to understand the reason for the takeover and analyzing the pros and cons of a potentially friendly merger, the Board threw up an automatic roadblock.

The Board is primarily comprised of Interco's top executives - out of the 14 named directors, only seven are independent shareholders who are not employed by Interco or one of its subsidiaries or divisions. The Board initially instituted certain "poison pill"
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