1. What is your estimate of the value of Eskimo Pie Corp as a stand alone company?
Luckily, I checked my e-mail this afternoon, so using a WACC of 16%, an FCF of $4,004,000, and $13,000,000 cash reserve (pg 593) I came up with this table in excel.
growth rate (g)valuetotal after adding cash $13 mil
2. Why would Nestle want to acquire Eskimo Pie? Are there potential synergies? Is Eskimo Pie worth more to Nestle than it is worth as a stand alone company?
Nestle acquiring Eskimo Pie would be a horizontal acquisition, Nestle is familiar with the type of business Eskimo Pie conducts. In fact, many of the products Nestle produces are similar to Eskimo Pie’s product line. Also with Eskimo Pie’s ability to license ingredients, Nestle would have more control over some of their competitors.
There are potential synergies between the two companies. Nestle has a potential synergy in its Carnation and Drumstick units. Production facilities for the two companies’ products could be combined, or eliminated to relieve some of the production overhead after Nestle acquires Eskimo Pie.
It was mentioned in the case study that Eskimo Pie had a patent on a sugar-free frozen dairy novelty bar made with NutraSweet. Eskimo Pie’s innovation and reaction to the market would be good reasons for Nestle to acquire Eskimo Pie. The two companies together would create a good product mix, and therefore could potentially be more valuable to Nestle than as a stand-alone company. Eskimo Pie is a well-run company and has good profitability. The fact that Eskimo Pie could be easily integrated with Nestle’s product line would save a lot of efforts by Nestle because the company would not have to step into a new...