November 19th, 2009
This report seeks to answer the following five questions about William Wrigley Jr.: 1. In the abstract, what is Blanka Dobrynin hoping to accomplish through her active-investor strategy? 2. What will be the effects of issuing $3 billion of new debt and using the proceeds either to pay a dividend or to repurchase shares on: a. Wrigley’s outstanding shares?
b. Wrigley’s book value of equity?
c. The price per share of Wrigley stock?
d. Earnings per share?
e. Debt interest coverage ratios and financial flexibility? f. Voting control by the Wrigley family?
3. What is Wrigley’s current (pre-re-capitalization) weighted-average cost of capital (WACC)? 4. What would you expect to happen to Wrigley’s WACC if it issued $3 billion in debt and used the proceeds to pay a dividend or to repurchase shares? 5. Should Blanka Dobrynin try to convince Wrigley’s directors to undertake the recapitalization?
Active Investor Strategy
Blanka Dobrynin is a managing partner of the Aurora Borealis Company. The company utilizes a strategy called “Active Investor”. In this strategy, the firm looks for companies that could benefit from restructuring. Aurora Borealis then invests heavily in the company’s stock. The next step is to convince management that a restructuring will benefit the company and its stock holders. The key to Blanka’s strategy is, of course, to affect the stock price of the company they are influencing. In the case of Wrigley, they are unique in that they have virtually no debt. Many would see this as a benefit....