November 19th, 2009
Active Investor Strategy2
Effects of $3 Billion in New Debt for Dividend or Stock Repurchase2
a. Outstanding Shares2
b. Book Value of Equity2
c. Price per Share2
d. Earnings per Share3
e. Debt Interest Coverage Rations and Financial Flexibility3
f. Outstanding Shares3
Wrigley’s Current Weighted Average Cost of Capital (WACC)4 Debt Proceeds to Pay a Dividend or Repurchase Shares4
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 which the firm indentifies companies that could benefit from restructuring and then invests heavily in the company’s stock. Aurora Borealis must convince management and directors that...