Interco Case Analysis
International Shoe Company became Interco Inc. on March 1, 1966. The new name reflected the company strategy of buying businesses in many different areas. Interco had three major divisions—apparel, footwear, and retailing. From 1964 to 1978, the company bought 20 other manufacturers or retailers as well as Central Hardware. Under Chambers plants started closing and some shoes were imported from such places as Italy. Overall, by the mid-1970s, 44 percent of shoes in the U.S. came from other countries. But Chambers’ strategies kept Interco successful, reaching a billion dollars with consistent growth in sales and earnings. Chambers moved to the chairman’s job in 1976, with William H. Edwards Jr. taking over as president, but continuing Chambers’ policies.
On April 31, 1978, Interco acquired International Hat Company and its six factories, as part of Interco’s expansion into the apparel industry. In 1980, Interco added furniture as a major division. That year the company bought Ethan Allen Inc. for $150 million. Interco also took over Broyhill Furniture, a North Carolina company that was the world’s largest privately owned furniture maker. In 1987, under new president Harvey Saligman, Interco bought Lane Company of Altavista, Virginia, which increased furniture and home furnishings to about one-third of Interco’s total sales.
Also under Saligman, Interco bought Converse in 1986. Footwear and furniture were the company’s most profitable areas, and the goal was to sell other businesses. Unfortunately, due to the costs of buying Converse and Lane, Interco itself appeared by this time to be a takeover target, more profitable as a group of separate companies to be sold than as a single unit. In 1988, Steven M. Rales and his brother Mitchell led a group that offered $2.47 billion, but that bid ran into trouble when the SEC charged Drexel Burnham Lambert with insider trading, making financing of the bid more difficult. Interco took on debt to discourage other offers, and the Rales group eventually backed off. But Interco could not make enough money by selling its unprofitable operations; For example, selling Ethan Allen brought in $388 million rather than the expected $550 million. The company’s debt had jumped from $300 million in 1988 to $2.6 billion in 1989, and operations were not producing enough income to cover the payments. On July 31, 1990, an agreement with creditors to extend loan maturities to 1997 was intended to avoid bankruptcy.
In 1989, Richard Loynd, Converse’s chairman and the leader of his company’s buyout effort, became Interco president. Interco filed for Chapter 11 in January 1991 and sold all of its operations except Broyhill, Lane, Converse, and Florsheim. Apollo Investment Fund, Ltd., led by Drexel Burnham Lambert’s Leon Black, took a controlling interest in the reorganized Interco, which emerged from bankruptcy in August 1992. In 1994, Interco exited the shoe business, selling Converse and Florsheim. Brown Shoe Company took over the rights to Red Goose. A former International Shoe Company warehouse became the City Museum.
Armstrong World Industries sold Thomasville Furniture Industries to Interco in November 1995 in a $331 million deal. Interco had over $1 billion in revenues at the time.