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EXHIBIT 7
DEAN WITTER REYNOLDS INC.
6000 SEARS TOWER
CHICAGO, ILLINOIS 60606
(312) 984-4321
April 10, 1997
Board of Directors
ERO, Inc.
585 Slawin Court
Mt. Prospect, Illinois 60056
Gentlemen:
ERO, Inc., a Delaware corporation ("ERO"), and Hedstrom Corporation, a Delaware
corporation ("Hedstrom"), contemplate entering into an acquisition agreement
(the "Acquisition Agreement"), dated as of the date hereof, providing for the
acquisition by Newco, a wholly owned subsidiary of Hedstrom through a tender
offer ("Tender Offer") and subsequent merger ("Merger") pursuant to which the
holders (the "Public Shareholders") of the issued and outstanding shares of
common stock (the "Common Shares") of ERO would receive $11.25 per share in cash
(the "Cash Consideration"). Golder, Thoma, Cressey Fund III Limited Partnership
owns 3,940,000 shares or approximately 38% of the Common Shares and has entered
into an agreement ("Stockholders Agreement") pursuant to which it has agreed to
tender its shares into the Tender Offer.
You have requested Dean Witter Reynolds Inc.'s opinion ("Dean Witter"), as
investment bankers, as to the fairness, from a financial point of view, of the
Cash Consideration, taken as a whole, to the Public Shareholders.
In arriving at the opinion set forth below, we have, among other things:
(1) reviewed the Acquisition Agreement and the Stockholders Agreement;
(2) reviewed the Annual Report on Form 10-K and related publicly available
financial information of ERO for the two most recent fiscal years
ended December 31, 1995 and 1996, the Quarterly Reports on Form 10-Q
of ERO for the periods ended March 31, 1996, June 30, 1996 and
September 30, 1996, and the definitive Proxy Statement on Form 14A,
dated March 10, 1997;
(3) reviewed ERO management's financial model of the income statement and
certain cash flow items for calendar year 1997, and balance sheet for
calendar year ended December 31, 1997 created as the 1997 budget;
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DEAN WITTER REYNOLDS INC.
ERO, Inc. Board of Directors
April 10, 1997
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(4) reviewed the current Analyst estimates of earnings per share for
fiscal year 1997 and 1998, and current Analyst estimates of average
annual industry growth rates for earnings per share for calendar years
1999 through 2002;
(5) conducted discussions with the Chief Executive Officer and Chief
Financial Officer of ERO concerning the past and current business,
operations, assets, present financial condition and future prospects
of ERO;
(6) reviewed the historical reported market prices and trading activity
for ERO's Common Shares;
(7) compared certain financial information, operating statistics, and
trading multiples relating to ERO with published financial
information, operating statistics, and trading multiples relating to
selected public companies that we deemed to be most comparable to ERO;
(8) compared the proposed Cash Consideration with the financial terms, to
the extent publicly available, of selected other acquisitions that we
deemed to be relevant;
(9) reviewed certain other information, including publicly available
information relating to the business, earnings, cash flow, assets and
prospects of ERO; and
(10) reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary.
In preparing our opinion, we have assumed and relied upon the accuracy and
completeness of all financial and other information supplied to us by ERO, or
that is publicly available, and we have not independently verified such
information. We also have relied upon the management of ERO, as to the
reasonableness and achievability of their financial results projected for fiscal
year 1997. We have not been requested to make, and we have not made, an
independent appraisal or evaluation of the assets, properties, facilities or
labilities of ERO, and we have not been furnished with any such appraisal or
evaluation.
It should be noted that this opinion necessarily is based upon prevailing market
conditions and other circumstances and conditions as they exist and can be
evaluated at this time, and does not represent our opinion as to what the actual
value of the Common Shares will be after the date hereof.
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DEAN WITTER REYNOLDS INC.
ERO, Inc. Board of Directors
April 10, 1997
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We have acted as financial advisor to the Board of Directors of ERO in
connection with this transaction and will receive a fee for our services, a
portion of which is contingent upon the consummation of the transaction and
delivery of this opinion.
On the basis of, and subject to the foregoing and other matters that we
consider pertinent, we are of the opinion that as of the date hereof the Cash
Consideration to be paid for the Common Shares in the Tender Offer and the
Merger, is fair, from a financial point of view, to the Public Shareholders.
Very truly yours,
/s/ DEAN WITTER REYNOLDS
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DEAN WITTER REYNOLDS INC.