Mergers, Acquisitions, Restructurings, and Corporate Governance Eskimo Pie Corporation Copyright © 1992 by the President and Fellows of Harvard College. Harvard Business School case 293-084.
In early 1991, Reynolds Metals, the makers of Aluminum Foil and other aluminum products, decided to sell its holding of Eskimo Pie, a marketer of branded frozen novelties. Reynolds had few interests outside its aluminum and packaging business, and the Eskimo Pie Corporation, with roughly $47 million in sales, accounted for less than 1% of Reynolds revenues. Reynolds planned to use the proceeds from the sale of Eskimo Pie to fund investments in its core aluminum business. Eskimo Pie was 84% owned by Reynolds Metals and 4% owned by the Reynolds Foundation. The remaining 12% of Eskimo Pie was held by various Reynolds family members and a small group of outside investors. Goldman Sachs, a New York investment-banking firm, was retained to assist with the sale of Eskimo Pie. Goldman estimated that the sale price of Eskimo Pie would be about 1.2 times 1990 sales or about $57 million. In 1990, Nestle Foods paid a comparable multiple for Drumstick, another ice cream novelty company. Goldman organized an auction for Eskimo Pie, and Nestle was the highest of six bidders, with a price of $61 million. Mr. David Clark, president of Eskimo Pie Corporation, recognized that the sale of Eskimo Pie to Nestle would mean the end of its independence. Nestle was likely to consolidate its ice cream novelty businesses by eliminating, Eskimo Pie's headquarters and management staff. Clark had struggled to find a way to keep the company independent since he first learned of the sale, but he had been unable to raise sufficient funds, to purchase Eskimo Pie in a Leveraged buyout (LBO), and the sale to Nestle seemed inevitable. Background Eskimo Pie, a chocolate-covered bar of vanilla ice cream, was the first ice cream novelty. Its history appears on the Eskimo Pie box: Genuine Eskimo Pie . . . One day [while] working in a confectionery store to supplement his teaching income, Christian K. Nelson became puzzled by a little boy's indecision between a chocolate candy bar and a scoop of ice cream When questioned, the freckle-faced boy replied, "I want 'em both but I only got a nickel.'. With a clever hunch and a little ingenuity, Mr. Nelson found a way to combine the two ingredients in what would become America's first chocolate-covered ice cream bar. The little boy got his wish and Mr. Nelson founded a corporation on the success of the Eskimo Pie product.
Christian Nelson, age 27, began trying to make chocolate stick to ice cream in 1920 while operating an ice cream and confectionery store in Iowa. After months of experimentation, Nelson discovered that cocoa butler made the chocolate adhere to the ice cream. He introduced his product as the "I-Scream-Bar" in 1921. One year later, Mr. Nelson formed a partnership with Russell Stover, and the product was renamed Eskimo Pie. Because the lack of refrigeration made centralized production and distribution impossible, Eskimo Pie licensed rights to make and distribute the Eskimo Pie bar according to Mr. Nelson's recipe. By the spring of 1922, licenses had been sold to 2,700 manufacturers across the country. Sales were averaging 1 million Eskimo Pies a day and soared to 2 million a day by early summer. Russell Stover, Nelson’s business partner, designed a tin foil wrapper that added to the product's glamour and provided a mechanism to collect royalties. US Foil Company, which was later renamed Reynolds Metal Company, manufactured the printed wrappers around the clock to satisfy demand. In spite of the popularity of Eskimo Pies, the Eskimo Pie Corporation was not financially successful. Eskimo Pie had difficulty collecting royalties both because the company lacked a reliable accounting system and because of patent infringers. By the summer of 1921, it was estimated that over 1 billion Eskimo Pies had been sold, and yet...
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