Perella & Co.’s Analysis

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Whitman School of Management

721 University Avenue

Syracuse, New York 13244

Harvey Saligman, CEO

Interco

Dear Mr. Saligman:

It was a great time for us to discuss with you about current situation of your company. This letter is in response to your inquiry regarding reasonableness of Wasserstein, Perella & Co.’s analysis and whether your company should accept the offer from City Capital Association Limited Partnership.

Our research is based on the facts and circumstance you provided to us. First, we analyzed your company’s financial performance based on market circumstance and financial statements you provided and figured out the reasons of your company being a take-over target. Second, we assessed the valuation conducted by Wasserstein, Perella & Co. through detailed analysis of assumptions and methodology used behind the premium paid method, comparable transaction method and discounted cash flow method used by your company’s financial advisor. Last, we assessed the actions of related parties involved and made the recommendations.

Based on our analysis, we think that the assumptions and methodologies under the three methods used by Wasserstein, Perella & Co. are questionable. We suggest that your board should not reject the offer directly based on your financial advisory’s analysis. Besides that, we also recommend that a more detailed and reasonable analysis about your company’s value should be conducted in order to pursue a more convincing offer. Since City Capital was formed solely for acquiring your company, which showed Rales brothers’ great interest in your company. Therefore, we think that it’s highly possible that your company can increase the offer price further if you provide the needing information.

The attached file is the detailed analysis report done by our team. If you have some questions or want to discuss anything further in detail, please feel free to contact us.

Sincerely,

Team 10

Description of the problem

By year 1988, Interco was an International Shoe Company founded in 1911. It had grown as a major manufacturer and retailer of wide variety of consumer goods and services. Starting from July 28, 1988, City Capital Association Limited Partnership (City Capital) offered to purchase common shares of Interco. City Capital had changed the offer price from $64 per share to $70 per share. On August 8, 1988, Wasserstein, Perella & Co. (Wasserstein Perella), the financial advisor of Interco, presented its valuation and gave advise to board member of Interco that Interco was undervalued. The methods for evaluation used by Wasserstein Perella were premium paid analysis, comparable transaction analysis, and discounted cash flow analysis. As a result, board of director voted to reject City Capital offer. The purposes of this case are to summarize Interco’s financial performance, analyze why did Interco become a target of a hostile takeover attempt, evaluate three methods of evaluation used by Wasserstein Perella and assess the actions of all involving parties, including Interco’s board of directors, Wasserstein Perella, and Drexel Burnham’s, which was the City Capital’s financial advisor.