Description

Bankers,

This letter is further to our phone conversation earlier today regarding our need for financial advice. We are assessing who we will retain as our investment bankers.

Situation Overview

Our firm (“ParentCo”), is a medium sized (slightly less than $550m in market cap and approximately

$800m in revenues), non‐dividend‐paying publicly traded entity with two reporting units, one involved in the media business (“MediaCo”) and the other involved in the apparel business (“ApparelCo”).

There are several hedge funds who own small percentages (each hold less than 4% of total outstanding common shares, but none have a board seat) in the Company. Recently, one hedge fund, Activist Capital, publicly released a letter asking ParentCo to divest ApparelCo and focus on its media business. Activist Capital argues that this course of action will raise the stock value for shareholders. Activist Capital also noted that if we don’t do this, they will push to replace management and/or to demand a sale of ParentCo.

In the midst of all this, we have actually been thinking of acquiring a certain private fashion company (“FashionCo”), which is approximately the same size as ApparelCo in terms of revenue and this could be a prime opportunity to accelerate our growth, improve margins and regain public confidence in our commitment to drive value creation.

We are looking for you to help us through this process and advise us on whether we should:

• look to sell ApparelCo and if so, at what price would be reasonable to sell;
• look to acquire FashionCo, and at what price should we make an offer;
• keep the status quo;
• or pursue other options.

In providing this advice, we would like to know the following:

• What are ApparelCo and FashionCo worth individually? What might change the value if they were combined?
• Given these valuations as well as other circumstances, should we bid on FashionCo and, if so, how much should we bid?
• What other strategies are available to provide liquidity and/or enhance value to the ParentCo shareholders?

ParentCo Background

ParentCo, located in Los Angeles, California, is involved in the media and apparel industries through its MediaCo and ApparelCo reporting units. The Company was founded approximately 40 years ago by Harvey Masterson. Harvey resigned as the chairman of the board and CEO of ParentCo 15 years ago but is still an important stockholder in the Company and regularly provides advice as a board member. The Company was known as MediaCo until the formation of ApparelCo 10 years ago, at which time the Company changed its name to ParentCo.

• Aside from MediaCo and ApparelCo, there are no other entities that are a part of ParentCo.

MediaCo

MediaCo is engaged in the publishing of daily, weekly and monthly periodicals, and operates a website and small television production company that all focus on consumer product reviews. Harvey originally started MediaCo as a once‐a‐month periodical providing reviews of consumer goods that could be purchased in local retail outlets. As MediaCo grew, it expanded into several more periodicals (mainly newspapers), developed relationships with television networks to produce programming based on its periodical content and developed a website approximately 10 years ago that primarily provides content available in its periodicals.

• The majority of MediaCo periodical sales are made to professionals between the age of 45 and

65. However, management has made efforts in the past year to target a younger audience.

• Over 90% of MediaCo revenues come from the sale of periodicals.
• Management believes the production po1tion of the business is barely making a profit but enhances MediaCo’s marketing reach.
• After a significant push over the past 10‐15 years, growth has slowed and management does not see many more opportunities for organic growth in the coming years, aside from capturing new customers that are younger than 45.

ApparelCo

ApparelCo designs, develops, sources, markets, and distributes fashion‐forward apparel and accessories products for men and women. ApparelCo was founded 10 years ago as a means of capitalizing on the relatively well‐known brand name of MediaCo through the design and sourcing of apparel carrying the MediaCo logo. ApparelCo products are sold in a limited number of mass retail outlets and are considered to be of high quality and fashionable.