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A Case Study on

Spiegel, Inc.

Group-2

ID No Name

16004 Sabrina Tazin

16002 Sk. Nausheen Laila

16010 Farhana Hossain Erna

18058 Masud Rana

Sabrina TazinID-16004

Company Overview

• The Spiegel Group is a lifestyle retailer, selling apparel, home furnishings and other specialty products.

• Spiegel, Inc was founded in 1865 & began its catalog business in 1905.

• Spiegel competes with other purveyors of clothing and household goods, including: The Gap; Lands' End; The Limited; Lillian Vernon, New Process, Sharper Image, Williams-Sanoma, Charming Shoppes, Nordstrom etc.

• The main target market for the apparel and home furnishings featured in Spiegel's catalogs and stores consists primarily of middle-class working women, ranging in age from 21 to 59.

Industry Analysis

Industry Profitability

Rivalry among existing firms: Low•Company emphasize on Differentiationwhich limits intra industry rivalry

Threats of new entrants: High•Customer base is increasing•Switching cost is low

Threats of substitute product: High•Substitute products are fairly priced

Bargaining power of Buyer: Low•Buyers are not concentrated•Do not buy in large volume

Bargaining power of Supplier: Low•Switching cost among suppliers are low

Farhana Hossain ErnaID-16010

SWOT Analysis

Strength:• Catalog selling is a

great business idea to serve different group of consumers by saving their valuable time.

• Lifestyle resource for the working woman.

• Offering an extensive array of fashionable apparel and home furnishings.

• Main target market contains middle class working woman ranging in age of 21 to 59 years.

Weakness:• Sales of the business is

greatly influenced by seasonal effect

• Sales can be lagging due to lower Consumer demand, and apparel sales.

• Increased cost of postage and paper can increase the cost of the business

SWOT AnalysisOpportunity• Can start an online

version of catalog sales products

• it can add a consumer electronics line

Threat• The business could be

harmed by any restrictive trade legislations.

• -The threat of import restrictions on textile and knitted goods is increased by the pressure for legislative protections of the domestic textile industries.

• A unexpected tightening in paper market or strike by parcel service workers can be a great threat for the company.

IPO Details

Proposed Features:The shares would be nonvotingThe shares would not carry a stated dividendOtto-Versand would maintain ownership of more than 80% of the total number of shares in order to continue consolidated Spiegel for tax purposesThe proceeds would be at least $100 millionThe shares offered would be sold for a price at least 20* 1987 projected earnings.

Sk. Nausheen LailaID-16002

Ratio Analysis

Particulars 1985 1986

Current Ratio 3.75 3.53

Quick Ratio 3.01 2.93

Inventory Turnover

6.74 8.39

Gross Profit Margin

0.38 0.40

Net Profit Margin

0.15 0.36

Ratio Analysis

Particulars 1985 1986

Total Asset Turnover

1.25 1.35

Fixed Asset Turnover

22.44 25.32

ROA 1.91% 4.86%

ROE 11.66% 27.65%

Ratio Analysis

Particulars 1985 1986

EPS 0.33 0.93

Debt Ratio 0.84 0.82

TIE 1.72 2.96

Ratio Analysis•Assets are being used efficiently to generate sales.•Spiegel made effective use of leverage-the company has borrowed money at a lower rate of interest & was able to earn profit by using the borrowed money.•Spiegel’s ROE increased by almost 16%.•A large percentage of the firm’s assets is supported by debt financing resulting into a high financial risk scenario.•Earning of Spiegel is increasing proportionately with the financial expense of the company. Their earning is sufficient enough to cover the increasing financial expense of the company.

Masud RanaID-18058

Problem Statements

•What Should be the offer price?•When should Spiegel go for IPO?

Prospective Analysis: Assumptions

Sales Growth for next five years is 20%, 15%, 12%, 8% and 5% respectively

Cost of Sales (COS): 61.47% of sales

SGA Expenses :31% of salesWeighted Average Interest

Rate: 8.36%Tax Rate: 48%

Valuation-DFCFE: Assumptions(Discounted Free Cash Flow to

Equity)

Perpetual Growth Rate: 3%Cost of Equity (Ke): 20%Floatation Cost : 5.75% of IPO

Proceeds.Depreciation: Flat Lining

MethodNew Funding: To support

Sales growthChange in Net Working

Capital

Valuation-DFCFE: Assumptions(Discounted Free Cash Flow to

Equity)

Scenario Summary Current values Likely Best Worst

Changing Cells

Discount rate 20.00% 18.00% 16.00% 25.00%

Terminal growth 3.0% 2.0% 3.5% 1.0%

Tax Rate 48.0% 40.0% 36.0% 55.0%

Result cells:

Equity value 22.47 24.94 30.92 16.40

Valuation: Relative Analysis

P/E Multiple Method:P/E Multiple Method:

P/BV Multiple Method:P/BV Multiple Method:

Average P/ E of Specialty 20.7 26.48Forecasted EPS-1987 0.52 0.52Estimated Price 10.76 13.76

Average Price/ BV of Specialty 7.84 5.62Interim BV per share 2.78 2.78Estimated Price 21.79 15.62

Valuation Summary

Valuation Method Price Range Estimated Price

DFCF $16.40-$30.92 $23.66P/ E Multiple $10.76-$13.76 $12.26P/ BV Multiple $15.62-$21.79 $18.71

$18.21

Valuation Summary

Cutoff Price

Reasons for Immediate Issue

•Social changes are conspicuous favoring Spiegel’s business.•Favorable macro economic variables.•Upcoming pre- Christmas sale.•Customer’s confidence about quality of the product of Spiegel due to its distinctive nature.•Consumer confidence climbed for the third consecutive month in September, to the highest level in nearly 15 years.•High job security fuels more consumption and demand of products for Spiegel•Large number of domestic and international syndicate members, which will create depth and breadth of the issue•Successful road show and positive feedback from institutional investors

Holding Period Return of Investors

Sales GR (Y1) Sustainable GRAssumptions 20% 3%

Price after 2 months 22.47Investor's Price 18.21Dividend 0.0529HPR 23.67%

Annualized Return 142.02%

Immediate offering

Sales GR (Y1) Sustainable GRAssumptions 15% 2.50%

Price after 2 months 24.94 Investor's Price $22.47Dividend 0.049HPR 11.24%

Annualized Return 67.42%

Soft Issue

Net Proceed from IPO

Particulars Amount %Issue Management Fee 1,751,738 33.85%OTC Market Listing Fee 632,903 12.23%

Application Fee 275,828 5.33%Underwriting Commission 456,953 8.83%Legal Fee and Others 862,155 16.66%Printing and Others 1,195,943 23.11%

Total 5,175,000 100%

Net Proceed from IPO 84,825,000

Recommendation & Conclusion

The industry is currently profitable but degree or possibility of abnormal profit in the future is low.

Spiegel has better liquidity position in terms of short term debt paying ability.

The company is running profitably right now, but future competition may hamper the future profitability.

SI’s efficiency ratio is good. The financial risk is gradually increasing due to

higher debt using in their capital structure. The price of shares should be $18.21. The company should go for immediate public

offering to attract higher investor’s attention and interest.

Thank You