THE WM. WRIGLEY JR.COMPANY: CAPITAL STRUCTURE, VALUATION AND COST OF CAPITAL
Aurora Borealis LLC is a hedge fund that has around $ 3 billion under management and they are currently targeting William Wrigley Jr. Company to make their next investment. William Wrigley Jr. Company is the biggest chewing gum manufacturer in the world and it has no debt yet. Aurora Borealis is trying to convince Wrigley to do a leveraged recapitalization through a dividend or share repurchase. So Wrigley has to make decisions on whether or not to borrow $ 3 billion for recapitalization.
Based on the above situation, there are few questions that arise as seen below: ●Whether the recapitalization would be good for the company’s development in the long run?
●After borrowing $ 3 billion dollars what would the impact on the company’s debt rating be?
●What’s the impact on the company’s share value; would the recapitalization increase the company’s share value?
●What’s the impact on the company’s WACC, an increase or decrease?
●Would recapitalization increases the EPS of the company? Hypothesis “Whether the proposed leveraged recapitalization is efficient for Wrigley?” Method In order to answer the above questions and find a solution to the hypothesis, the following methods have been used in the later analysis: APV, WACC, CAPM method and other financial approaches will be used to analyze various...