M

Divya Banarje
Himanshu Jham
Sumit Das

Mercury Athletic Footwear Case Analysis

Group 6
Divya Banarjee | 15P079
Himanshu Jhamb | 15P083
Sumit Das | 15P112

Varun Mittal | 15P116

Vikrant Wakhlu | 15P117
Vipul Gupta | 15P118

Table of Contents
Base Case
WACC Calculation
Terminal val with Same growth for diff segments
Terminal val with diff growth for diff segments
Terminal val with no growth
Senstivity Analysis

Synergy Calculation
WACC Calculation
Terminal value with same growth for all segments
Terminal val. Assuming diff growth for diff. segments
Terminal val with no growth
Senstivity Analysis

| 15P116
u | 15P117
| 15P118

Company
D&B Shoe Company
Marina Wilderness
General Shoe Corp.
Kinsley Coulter Products
Victory Athletic
Surfside Footwear
Alpine Company
Heartland Outdoor Footware
Templeton Athletic
Debt to Equity

WACC Calculation (Using Bottom-up Beta)

D/E
29.90%
-7.60%
32.20%
49.70%
21.70%
34.30%
28.50%
-6.70%
42.60%
25%

WACC Calculation (Using Bottom-up Beta)

Equity Beta
2.68
1.94
1.92
1.12
0.97
2.13
1.27
1.01
0.98
Beta unlevered (Median)
Beta levered
Risk Free Rate (10 Year Zero Coupon Bond)
Rm
Cost of Equity
Cost of Debt
WACC
Discount Factor (1+WACC)
Growth
Terminal val with Same growth for diff segments
EV
Terminal val with diff growth for diff segments
EV
Terminal val with no growth
EV

Unlevered Beta
2.27
2.03
1.61
0.86
0.86
1.77
1.08
1.05
0.78
1.08
1.25
4.73%
10%
11.30%
6.00%
9.76%
1.098
2.50%
416,986
349,713
449,565
370,162
397,111
337,238

Operating Expenses
Operating Income
Depriciation
Capex
Working capital
Change in Working Capital
Share of corporate overhead
Operating Profit
FCFF

2007
2008
Men's athletic
219,093 251,957 282,192
12.0%
218,435 244,647
33,522 37,545
5,039
5,644
6,823
7,055
49,366 57,130 64,244
7,764
7,114
4,461
4,997
29,061 32,548
7,889 11,004

Revenue

Men's Casual
51,663 52,179

Revenue

Operating Expenses
Operating Income
Depriciation
Capex
Working capital
Change in Working Capital
Share of corporate overhead
Operating Profit
FCFF

Revenue
Operating Expenses
Operating Income
Depriciation
Capex
Working capital
Change in Working Capital
Share of corporate overhead
Operating Profit
FCFF

Revenue
Operating Expenses
Operating Income
Depriciation

2009
310,411
10.0%
269,112
41,299
6,208
7,760
70,663
6,419
5,496
35,803
13,511

53,223
2.0%
44,711
8,512
1,065
1,331
12,117
286
942
7,570
3,990

54,287
2.0%
45,605
8,682
1,086
1,357
12,358
241
961
7,721
4,120

Women's Athletic
123,563 138,390 153,613
11.0%
124,302 137,976
14,088 15,637
2,768
3,072
3,747
3,840
27,841 31,379 34,972
3,538
3,593
2,450
2,720
11,638 12,917
2,465
3,390

167,438
9.0%
150,393
17,045
3,349
4,186
38,116
3,145
2,965
14,080
4,467

11,641

43,834
8,345
1,044
1,413
11,831
191
924
7,421
3,893

Women's casual
36,802 36,802

37,265
-463
736

0
0
0

0
0
0

Working capital
Change in Working Capital
Share of corporate overhead
Operating Profit
FCFF
Consolidated Revenue
Operating Expense
Corporate Overhead
Consolidated Operating Income

8,292

0
0
0
0
0

0
0
0
0
0

Consolidated
431,121 479,328 489,028 532,136
11.2%
2.0%
8.8%
423,836 427,334 465,110
8,487
8,659
9,422
1.771% 1.771% 1.771%
47,005 53,035 57,604

Estimated Capital Expenditures

11,983
2.50%
9,587
2.00%
14.18%

Estimated Depriciation

Change in working capital

11,546

FCFF
Discount Rate
Present Value
EV
Restricted Cash
As a % of Revenue

8,345
53
652
-1,115
15

12,226 13,303
2.50%
2.50%
9,781 10,643
2.00%
2.00%
13.50% 13.72%

2,648

9,805

14,261 26,728 22,097

1.10
1.20
1.32
12,993 22,185 16,710
349,713
3699
0.0086

4161
0.0087

4195
0.0086

4566
0.0086

Accounts Recievables
As a % of Revenue

45910

47888
0.100

48857
0.100

53164
0.100

Inventory
As a % of Revenue

73149

83770
0.175

85465
0.175

92999
0.175

Prepaid Expenses
As a % of Revenue

10172

14474
0.0302

14767
0.0302

16069
0.0302

PP&E
As a % of Revenue

32618

35015
0.0731

37460
0.0766

40120
0.0754

Accounts Payables
As a % of Revenue

16981

18830
0.039

18985
0.039

20664
0.039

Accrued Expenses
As a % of Revenue

18810

22778
0.0475

22966
0.0470

24996
0.0470

Total Working Capital

97139.239454

108685

111333 121138

2010

2011

335,244
8.0%
290,641
44,603
6,705
8,381
76,314
5,650
5,936
38,667
15,874

352,006
5.0%
305,173
46,833
7,040
8,800
80,128
3,814
6,233
40,600
18,786

286,139

24,360

249,534

55,916
3.0%
46,973
8,943
1,118
1,398
12,728
370
990
7,953
4,122

57,594
3.0%
48,382
9,212
1,152
1,440
13,110
382
1,020
8,192
4,246
4,915

55,790
50,350

179,159
7.0%
160,921
18,238
3,583
4,479
40,783
2,667
3,172
15,066
5,477

188,117
5.0%
168,967
19,150
3,762
4,703
42,821
2,038
3,331
15,819
6,513
9,492

107,636
97,227

0
0
0

0
0
0

0
0
0
0
0

0
0
0
0
0

570,319 597,717
7.2%
4.8%
498,535 522,522
10,098 10,583
1.771% 1.771%
61,686 64,612
14,258 14,943
2.50%
2.50%
11,406 11,954
2.00%
2.00%
13.73% 13.44%

8,687

6,234
Terminal Value with same growth fo diff segments

25,473 29,544
1.45
1.59
17,549 18,544

4894
0.0086

5130
0.0086

56978
0.100

59715
0.100

99672 104460
0.175
0.175
17222
0.0302

18049
0.0302

42972
0.0753

45961
0.0769

22149
0.039

23214
0.039

26792
0.0470

28081
0.0470

416,986
1.59
261,732

129825

136059

Beta

370161.60
0.88
0.93
0.98
1.03
1.08
1.13
1.18
1.23
1.28

17%

19%

Sensitivity Analysis
WACC
21%

ensitivity Analysis
WACC
23%

25%

27%

29%

31%

WACC Calculation (Using Bottom-up Beta)

Company
D&B Shoe Company
Marina Wilderness
General Shoe Corp.
Kinsley Coulter Products
Victory Athletic
Surfside Footwear
Alpine Company
Heartland Outdoor Footware
Templeton Athletic
Debt to Equity

D/E
29.90%
-7.60%
32.20%
49.70%
21.70%
34.30%
28.50%
-6.70%
42.60%
25%

WACC Calculation (Using Bottom-up Beta)

Equity Beta
2.68
1.94
1.92
1.12
0.97
2.13
1.27
1.01
0.98
Beta unlevered
Beta levered
Risk Free Rate
Rm

Unlevered Beta
2.27
2.03
1.61
0.86
0.86
1.77
1.08
1.05
0.78
1.08
1.25
4.73%

Cost of Equity
Cost of Debt
WACC
Discount Factor
Growth
Terminal value with same growth for all segments
EV

10%
0.11
0.06
0.098
1.098
2.50%
460,609
410,033

Terminal val. Assuming diff growth for diff. segments

EV
Terminal val with no growth
EV

494,423
431,258
416,067
382,076

2006
Revenue
Revenue Growth
Operating Expenses
Operating Income
Depriciation
Capex
Working capital
Change in Working Capital
Share of corporate overhead
Operating Profit
FCFF

Revenue
Revenue Growth
Operating Expenses
Operating Income
Depriciation
Capex
Working capital
Change in Working Capital
Share of corporate overhead
Operating Profit
FCFF

Revenue
Revenue Growth
Operating Expenses
Operating Income
Depriciation
Capex
Working capital
Change in Working Capital
Share of corporate overhead
Operating Profit
FCFF

Revenue
Revenue Growth
Operating Expenses
Operating Income

2007
Men's athletic
219,093
251,957

49,366

218,435
33,522
5,039
6,299
42,404
-6,962
4,461
29,061
23,138

Men's Casual
51,663
52,179
43,834
8,345
1,044
1,304
11,641

8,782
-2,859
924
7,421
7,051

Women's Athletic
123,563
138,390

27,841

124,302
14,088
2,768
3,460
23,291
-4,550
2,450
11,638
10,841

Women's casual
36,802
37,906
34,495
3,412

Capex
Depriciation
Working capital
Change in Working Capital
Share of corporate overhead
Operating Profit
FCFF

8,292

948
758
6,380
-1,913
671
2,740
3,367

Operating Expense
Corporate Overhead
Consolidated Operating Income

Consolidated
431,121
480,432
11.4%
421,066
8,507
50,860

Estimated Capital Expenditures

Estimated Depriciation

12,011
9,609

Consolidated Revenue

Change in WC

-16,284

FCFF
Discount Factor
Present Value
EV
Restricted Cash
% sales

44,397
1.10
40,449
410,033
3699.239454
0.009

4161
0.009

Accounts Recievables
% sales

45910

47888
0.0997

Inventory
% sales

73149 55940.71932
0.116

Prepaid Expenses
% sales

10172

14474
0.030

PP&E
% sales

32618

35015
0.073

Accounts Payables
% sales

16981

18830
0.039

Accrued Expenses
% sales

18810

22778
0.047

97139.2

80855.7

Total Working Capital

2008

2009

2010

2011

athletic
282,192
12.0%
244,647
37,545
5,644
7,055
46,681
4,278
4,997
32,548
13,841

310,411
10.0%
269,112
41,299
6,208
7,760
51,405
4,723
5,496
35,803
15,206

335,244
8.0%
290,641
44,603
6,705
8,381
55,560
4,155
5,936
38,667
17,369

352,006
5.0%
305,173
46,833
7,040
8,800
58,356
2,797
6,233
40,600
19,803

301,636

24,360

249,534

Casual
53,223
2.0%
44,711
8,512
1,064
1,331

54,287
2.0%
45,605
8,682
1,086
1,357

55,916
3.0%
46,973
8,943
1,118
1,398

57,594
3.0%
48,382
9,212
1,152
1,440

8,804
23
942
7,570
4,253

8,990
186
961
7,721
4,175

9,267
277
990
7,953
4,215

9,548
281
1,020
8,192
4,346
4,915

57,111
50,350

153,613
11.0%
137,976
15,637
3,072
3,840
25,411
2,121
2,720
12,917
4,862

167,438
9.0%
150,393
17,045
3,349
4,186
27,728
2,317
2,965
14,080
5,294

179,159
7.0%
160,921
18,238
3,583
4,479
29,692
1,964
3,172
15,066
6,180

188,117
5.0%
168,967
19,150
3,762
4,703
31,186
1,495
3,331
15,819
7,056
9,492

116,622
97,226

39,043

40,215

41,421

42,664

35,529
3,514

36,595
3,619

37,693
3,728

38,824
3,840

Athletic

s casual

976
781
6,459
0
691
2,823
1,498

1,005
804
6,660
201
712
2,907
1,342

1,036
828
6,865
205
733
2,994
1,385

1,067
853
7,073
208
755
3,084
1,429
1,851

528,071
9.9%
462,863
9,350
55,858

572,351
8.4%
501,705
10,134
60,511

611,740
6.9%
536,228
10,831
64,680

640,381
4.7%
561,346
11,339
67,696

13,202
10,561

14,309
11,447

15,293
12,235

16,010
12,808

6,500

7,427

6,600

4,781

19,055
18,957

dated

Terminal Value Assuming Constant growth for

32,635 460,609
1.59
1.59
20,484 289,112

24,374
1.20
20,231

26,018
1.32
19,675

29,149
1.45
20,082

4195
0.008

4566
0.008

4894
0.008

5130
0.008

48857
0.0925

53164
0.0929

56978
0.0931

59715
0.0932

61487.7473 66643.5559 71229.9971 74564.8649

0.116
0.116
0.116
0.116
14767
0.028

16069
0.028

17222
0.028

18049
0.028

37460
0.071

40120
0.070

42972
0.070

45961
0.072

18985
0.036

20664
0.036

22149
0.036

23214
0.036

22966
0.043

24996
0.044

26792
0.044

28081
0.044

87355.7

94782.6

101383.0

106163.9

Sensitivity Analysis

Beta

410,033
2%
2.25%
2.50%
2.75%
3%

431257.95
0.88
0.93
0.98
1.03
1.08
1.13
1.18
1.23
1.28

17%

19%

9%

9.50%

10%

WACC
21%

10.50%

ming Constant growth for all segments

lysis
WACC
23%

11%

25%

27%

29%

31%