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Mercury Athletics

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3/26/12 10:45 PM

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Jide Wintoki From: Richard Smith, Scott Mitchell, Zack Gregory Re: Mercury Athletic Acquisition Based on our analysis of Mr. Liedtkes base case projections for a potential acquisition of Mercury Athletic, we have concluded that this is a positive net present value project, and that AGI should proceed with the acquisition. Under Mr. Liedtkes operating assumptions, we calculate the value of Mercurys discounted cash flows to be $624.446 million, and the acquisition price to be $156.643 million, yielding a net present value of $467,804 for AGI. Our calculations indicate that this project becomes even more attractive financially when potential favorable synergies between AGI and Mercury are taken into account. A real options valuation (details below) involving inventory management and the womens casual line indicates that an additional $22.365 million of value would be created by the successful implementation of fairly simple operating synergies in those two...

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