Essay PreviewMore ↓
Reynolds Metals is the majority owner of the ice scream company Eskimo Pie Corporation and has decided to sell this company. Nestle Foods provided the highest offer of $61 Million. Due to delays of the Nestlé’s purchase, Reynolds Metals has take into consideration the IPO proposal of David Clark, president of Eskimo Pie Corporation, rather than selling the company to Nestle Foods (Case Study, 2001).
This analysis will identify the current value of the company at a stand-alone value and explain why Nestle Food would want to buy this company and the synergies involved for their reasoning. We will also discuss who will benefit if Reynolds Metals were to sell to Nestle or were to create an IPO. Finally we will provide a recommendation for Reynolds Metals that will be most beneficial to the company financial needs.
There are many valuation methods that could be used to evaluate this company. Finding a method that valuates the stand-alone value is difficult. The stand-alone value should be dependent upon the firm’s own assets and projected future income. We decided to evaluate this company based upon two methods: The Discounted Cash Flow Method and the Comparable Companies Method.
Discounted Cash Flow Method takes the forecast free cash flows during forecasted horizon. Then we estimate the cost of capital (weighted average cost of capital) and estimate continuing value (value after forecast horizon). The future value is discounted to the present value. We than add back cash ($13 Million) and non-current assets and deduct total debt. With the information provided several assumptions had to be made to obtain reasonable values (life period of 30-years, Capital expenditures not to exceed $1 million dollars, depreciation to stay constant at $1.15 Million and a discounted rate of 10%). Based on our analysis, the company has a stand-alone value of $51 Million at the end of fiscal year end 1990 with a net present value of cash flows of $33 million that does not include the cash and non-current assets a cash of and non-current assets.
The greatest risk using Discounted Cash Flow Method is all the assumptions that were made. Without knowing and having complete information this method could report underestimated or overstatement figures.
The second method we used to analyze the firm’s value was the Comparable Companies Method. We used the historical figures as of 1990 and Goldmans Sach’s Projections. With an average of 22.
How to Cite this Page
"Eskimo Pie Corporation." 123HelpMe.com. 20 Aug 2019
Need Writing Help?
Get feedback on grammar, clarity, concision and logic instantly.Check your paper »
- CHAPTER TWELVE Chute-and-Pucker Cherry Pie Mason was hoping for more fireworks. A band. Or at least a few lame red-white-and-blue sparks, but the only welcoming committee was my dog, Norbert and a trespassing chipmunk who was wobbling precariously across a limb with a seed. My dog raced back and forth in front of the tree galloping like a crazed miniature pony. His unruly pointed tail knocked the heads off dandelions and tore up the grass. He growled, raised his hackles and I grabbed his collar.... [tags: Family, Grandparent, Pie]
1296 words (3.7 pages)
- PROBLEMS: The People lack DEEP KNOWLEDGE: With a gross cut in the number staff of about 200,000 as a result of noticeable decline in performance, IBM 's control continued to wane around 1990s. IBM reported its first huge loss in 1990; its income declined by 74.8% toward the end of the year. Resultantly IBM was relegated to 45th place in the Forbes records. IBM woes further deepened as a result of the promoters’ denial of the fact that their income and reputation were on the dwindling trend. Another factor responsible for the downward trend of IBM around this time is the incursion of new IT companies, Microsoft Corporation and Intel Corporation.... [tags: Corporate governance, Corporation, Management]
871 words (2.5 pages)
- A Multinational Corporation, also known as MNC, is a corporation that has its facilities and other assets in more than one country, in addition to its home country. These corporations operate comprehensively in more than one country by having a main office in a centralized location where they systematize global management and have offices and/or factories in different countries. Multinational Corporations may participate in numerous activities such as manufacturing, importing and exporting in different countries.... [tags: Corporation, Multinational corporation]
1200 words (3.4 pages)
- Nam Pham CWID #: 802 140 244 Finance 370 Part 3 – Short Paper Topic: Multinational Corporation Multinational Corporation (MNC) is a corporation that has asset in other country other than its local country. It is sometimes called international corporation, a transnational or stateless corporation. Some companies also have their factories and offices worldwide. Multinational Corporation began to evolve since the nineteen century with American and European countries. According to Hymer, the multinational corporation was based on the perspective of the American.... [tags: Multinational corporation, Corporation]
953 words (2.7 pages)
- The Multinational Corporation Introduction A multinational corporation or worldwide enterprise  is an organization that owns or controls production of goods or services in one or more countries other than their home country.  It can also be referred as an international corporation, a "transnational corporation", or a stateless corporation.  One of the first multinational businesses was the India Trading  company and was created around 1600, around 1602 the Dutch India Trading company was created and remained the largest corporation in the world for nearly 200 years.... [tags: Multinational corporation, Corporation]
708 words (2 pages)
- Multinational corporations also called MNCs or transnational corporations, it is a registered company that operates in multiple nations. “A multinational is a firm has its headquarters in one country and branches, manufacturing or assembly plants in others. In other words, it is mot just an exporter. It has business operations in several countries.” (Surridge, 2014) To be more simply, any company that gained a quarter of company’s revenue comes from domestic are called multinational corporations.... [tags: Multinational corporation, Corporation]
1400 words (4 pages)
- Running head: GLOBAL BUSINESS ANALYSIS 1 5 GLOBAL BUSINESS ANALYSIS Dawn M Howarth Baker College Global Business Analysis: Structure & Strategic Advantages This paper offers a global business analysis of ABC Corporation that is a proposed multinational corporation (MNC) in the auto and IT (information technology) sector based in the United States. It looks at issues of business structure approach to be used by the firm for purposes of global expansion and the strategic advantages and disadvantages of the Global Business approach of the company.... [tags: Corporation, Multinational corporation]
973 words (2.8 pages)
- Pie in the Sky Among the oddballs and exhibitionists who clustered around Andy Warhol in the 1960's and 70's perhaps the scariest was Brigid Berlin, a chubby, motormouthed rebel from an upper-crust New York City family who relished the way her "underground" celebrity embarrassed her proper conservative parents. Her father, Richard Berlin, a friend of Richard M. Nixon and an admirer of Senator Joseph R. McCarthy, ran the Hearst Corporation, which he had helped save from bankruptcy in the 40's. Her mother, Honey, was an elegant, ladies-who-lunch-style socialite of the old school.... [tags: Essays Papers]
736 words (2.1 pages)
- Marriage in Rossetti's Promises Like Pie-Crust and Poe's Bridal Ballad In Christina Rossetti's "Promises Like Pie-Crust" and Edgar Allan Poe's "Bridal Ballad" female speakers encounter the milestone of marriage. Facing strong pressures from society, Rossetti's speaker refuses marriage in three well-reasoned arguments which are veiled in a guise of superciality. Conversely, Poe's speaker accepts marriage, but by the end of the poem realizes the dire consequences of her decision. Rossetti knows what she wants and does not want out of life; subsequently, Rossetti realizes that personal satisfaction and even joy may exist without a man and thus makes the tough decision not to marry.... [tags: Promises Like Pie-Crust Essays]
2718 words (7.8 pages)
- Analysis of The Eskimo Girl Living in the Arctic wasn't easy. There were always problems, but this was different. Sophie had never been in such a desperate situation... She walked and looked around her. Sophie had lived in this part of the North Pole with her Inuit tribe for thirteen years. The Eskimos knew the land well. Sophie often explored the vast lakes and ancient mountains and had never got lost; but this time was different. She hadn't meant to walk far, but then she hadn't anticipated a snowstorm either.... [tags: Papers]
592 words (1.7 pages)
Other methods not considered are the Book Value Method and Economic Method. Book Value Method does not take in to consideration the market value of the company. Eskimo Pie true value is based on the name of the product and not the historical value of assets. Eskimo Pie generates high cash and does not need to invest in fixed assets to create growth.
The purpose of Nestlé’s proposal of $61 Million is to consolidate its current operation Drumstick with Eskimo Pie operations. Buying Eskimo Pie will lower overhead cost by eliminating Eskimo Pie management, utilizing existing facilities, and eliminating sublicensing costs (Case Study, 2001).
The purchase price is larger then the both of our stand-alone analysis because Nestle Foods is most likely projecting the value at discounted rate based on combined cash flows from both Drumstick and Eskimo Pie operations. Nestle is valuing the company based on acquisition synergy (Case Study, 2001).
By combining the company value on a stand-alone basis of future cash flow (non-synergistic buyer) with the cash flows related to the apparent synergistic benefits (related to Drumstick), Nestle determined its purchase price. By creating a synergy value can creates a risk that the purchase price might be overstated because it tends to overestimate the magnitude of timing of synergistic cash flows while underestimating their associated risks. It may also inadequately evaluate an appropriate split of synergistic value between buyer and seller. The benefit of doing a synergy acquisition is that it can evaluate the sensitivity of their value to changes in both the timing of projected cash flows and the key variables affecting cash flow magnitude (Jaffe, Jeffrey; Ross, Stephen A.; and Westerfield, Randolph, 2001).
Example of synergy is when GM bought a foreign car automotive called Daewoo. Combining GM with Daewoo created a global synergy and allowed GM to enter a foreign market and be more profitable. Most of the profits are not expected for a few years down the road, however GM expects to take 26% of South Korea’s market in the near future. Like all acquired synergies, only time after the acquisition will provide if the synergy value was benefit to the company (Unknown, 2002).
Who will benefit
Reynolds Metals will benefit more financially by not selling to Nestle Foods. Both estimated stand-alone values are less then the purchase price, but Reynolds Metals will have to pay significantly high capital gains by selling to Nestle. Capital gain taxes will take a large sum of the cash.
On the other hand, Nestle will benefit from the purchase because it will get a tax break from borrowing money to the purchase company and as mention above, buying Eskimo Pie will lower overhead cost by eliminating Eskimo Pie management and Nestle utilizing existing facilities and eliminating sublicensing costs creating greater cash flows.
Based on the projections, Eskimo Pie Company is expecting sales growth estimated at 15%. It is also undervalued compared to its industry average. Doing the IPO will create higher market value of the company and generate enough cash to finance the IPO. In addition, the IPO will benefit senior management, employees, and the community. If Reynolds Metals is concerned about receiving cash, they will receive upfront of 84% of $15 Million dollars of dividends and the value of the stock would increase because it will be valued based on the market. Wheat First will benefit as a banker that could provide additional debt needs to Eskimo Pie.
With the IPO, there could be a potential conflict between shareholders (management) and debt holders. The IPO will create additional debt that may cause potential conflicts between parties. Debt holders may require specific structure of the IPO to decrease their risk while management would want to take the greater risk that might provide greater profits not agree. The agency of the company may have other parties monitoring their business decision.
If Nestle acquires Eskimo Pie, a conflict may occur between management and new owners. With management being eliminated with the new acquisition, they may not cooperate with Nestle in transferring business assets in the most efficient manner. With negotiations still in place, Reynolds Metals may be concerned in losing its agency, which may be delaying the transaction.
We recommend that Reynolds Metals chose the IPO. The IPO will distribute all of excess cash out of the company to provide adequate financing for the IPO. As mentioned above, the majority Eskimo Pie cash will be distributed to Reynolds Metals. The Nestle purchase is a good value according the present value based on a future value, although the price is undervalued according to the Company Comparison Valuation Method.
Case Study (2001). Eskimo Pie Case Analysis. Corporate Finance [University of Phoenix Custom Edition e-text]. McGraw-Hill Companies. Retrieved June 4, 2005 from
University of Phoenix, Resource, FIN/545–Finance for Managerial Decision Making Web site: ttps://mycampus.phoenix.-edu/secure/resource/resource.asp
Jaffe, Jeffrey; Ross, Stephen A.; and Westerfield, Randolph (2001). Corporate Finance: Fifth edition, Custom Electronic Text for the University of Phoenix, McGraw-Hill.
Unknown (2002). Newsweek. Retrieved June 19, 2005 from Website