Eskimo Pie Case
“As an advisor to Reynolds, would you recommend the sale to Nestlè or the proposed IPO?” Subpoints:
1. The managers of Eskimo Pie wanted to find an alternative to Nestlè’s acquisition offer for one main reason: Eskimo pie would lose its independence. If Nestlè went through with the acquisition, Eskimo would not continue its tradition of being a stand-alone company in Richmond with this meaning that its headquarters and management staff would probably be replaced too. Fundamentally, Eskimo was reluctant to being acquired by Nestlè because it felt it would be an aggressive takeover of the company. It would ruin a 70-year long business to take advantage of its tax conditions and it would probably transform the business similar to a traditional integrated manufacturing and marketing approach. 2. David Clark knew that Goldman Sachs had a long-standing relationship with both Reynolds and Nestlè. This meant that GS had a conflict of interest in this acquisition. The solution that would best satisfy GS’s interests would be to sell Eskimo to Nestlè but this might not be the best solution for Eskimo. So David Clark is dealing with Wheat First Securities instead of Goldman Sachs because he wanted to find an alternative to Nestlè’s offer. Since Wheat First Securities had no long-standing relationship with neither Reynolds nor Nestlé, it had no conflict of interest in this acquisition. It could see with more objectiveness which acquisition is the best for Eskimo. Furthermore David had personal interest in dealing with WFS because his own position could be put at risk by a Nestlè acquisition. 3. IPO alternative:
* Good IPO market conditions, in terms of number of deals and value
| * No exploitation of possible synergies with competitors, confirmed by Nestle as the major bidder
| * Updated forecasts containing results (Sales, Net Income, Capex) better than expected
| * Timing – an IPO offer...
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