Eskimo Pie Case Study
Dilemma: How will Reynolds Metals extract the maximum financial value from their ownership stake in Eskimo Pie Corporation?
Alternatives:
1) Follow through negotiating with Nestle Corp. to sell Eskimo Pie in private transaction 2) Initiate Initial Public Offering (IPO) process to gain proceeds from the public markets
Criteria:
1) Maximizes cash flows for Reynolds Metals, majority stakeholder in Eskimo Pie Corporation
2) Provides fastest conversion in terms of time of ownership in Eskimo Pie to cash
3) Transaction involves least risk and liability
4) Probability of transaction closure
Analysis:
1) PRIVATE SALE In this scenario, Reynolds Metals would sell Eskimo Pie Corporation outright to the highest bidder – in this case Nestle Corp for $61M.This outright buyout scenario seems farthest along (most mature) in terms of negotiations, given that Goldman Sachs has already filtered the highest bidder through an organized auction for sale on behalf of Reynolds Metals, but final specific complications mustn’t be overlooked. Two primary concerns inhibiting the deal closure exist for the buyer (Nestle): tax structure - maximizing tax savings given Nestlé’s headquarters are in Switzerland – and possible environmental cost estimated for contaminants from one of Eskimo’s manufacturing plants (est. liability of $300k). Significant risks in terms of deal closure and contract specifics still exist. Obvious benefits of this deal would be a contractually guaranteed amount, of which Reynolds Metals would obtain 84% of $61M bid from Nestle. If negotiation momentum can be reignited, this case may prove most attractive in terms of deal closure time and ability to convert Eskimo Pie shares to cash, but further with further assessment Eskimo Pie seems undervalued. Though relatively insignificant to Reynolds Metals, if this transaction were to be finalized, synergies between the company operations would inevitably lead to significant management and employee personnel
Alternatives:
1) Follow through negotiating with Nestle Corp. to sell Eskimo Pie in private transaction 2) Initiate Initial Public Offering (IPO) process to gain proceeds from the public markets
Criteria:
1) Maximizes cash flows for Reynolds Metals, majority stakeholder in Eskimo Pie Corporation
2) Provides fastest conversion in terms of time of ownership in Eskimo Pie to cash
3) Transaction involves least risk and liability
4) Probability of transaction closure
Analysis:
1) PRIVATE SALE In this scenario, Reynolds Metals would sell Eskimo Pie Corporation outright to the highest bidder – in this case Nestle Corp for $61M.This outright buyout scenario seems farthest along (most mature) in terms of negotiations, given that Goldman Sachs has already filtered the highest bidder through an organized auction for sale on behalf of Reynolds Metals, but final specific complications mustn’t be overlooked. Two primary concerns inhibiting the deal closure exist for the buyer (Nestle): tax structure - maximizing tax savings given Nestlé’s headquarters are in Switzerland – and possible environmental cost estimated for contaminants from one of Eskimo’s manufacturing plants (est. liability of $300k). Significant risks in terms of deal closure and contract specifics still exist. Obvious benefits of this deal would be a contractually guaranteed amount, of which Reynolds Metals would obtain 84% of $61M bid from Nestle. If negotiation momentum can be reignited, this case may prove most attractive in terms of deal closure time and ability to convert Eskimo Pie shares to cash, but further with further assessment Eskimo Pie seems undervalued. Though relatively insignificant to Reynolds Metals, if this transaction were to be finalized, synergies between the company operations would inevitably lead to significant management and employee personnel