Interco

Interco Summary of the Case Even before we go into the specifics of the case, we can point out a few important pieces of information from the case: 1) Interco management and Wall Street analysts believed that the apparel group’s performance would continue to weaken Interco’s overall operations and cause the equity markets to undervalue its common stock. Case Page 4. 2) To deter any unwanted third- party acquisition, the board voted on July 11, 1988, to amend Interco’s shareholder rights plan, making any hostile takeover of the company prohibitively expensive. Case Page 4. 3) Interco had retained Wasserstein Perella pursuant to a unique compensation contract that offered a substantial contingency fee of $3.7 million payable to Wasserstein Perella once City Capital rescinded their offer and only if a recapitalization was completed. Wasserstein Perella would receive $1.8 million for its services with or without this contingency fee. See George Anders and Francine Schwadel, "Wall Streeters Helped Interco Defeat Raiders But at a Heavy Price," The Wall Street Journal, July 7, 1990, p. A1. Case Page 4, footnote 2. What appears from the above information is that the management was not amenable to a prospective takeover offer. Case Discussion As the case reports, Interco’s goals included Long-term sales growth Earnings growth Increased return on assets Improved return on equity To meet these goals Interco began a strategic repositioning Program to Improve the profitability of existing assets Divest underperforming assets Make high-return, high-growth acquisitions Repurchase shares Prudently use borrowing capacity

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Laundry lists of goals and strategies may sound logical but in fact can be problematic. For example growth in sales, return on equity, a target capital structure, and a share repurchase program are not independent of one another. How has Interco done?
Exhibit 1 Interco and Business Segment Performance Data Business Segments Interco Overall Growth Net