What is your estimate of the value of Eskimo Pie Corporation as a stand-alone company?
In my opinion, Goldman's estimate of Eskimo Pie's worth as a stand-alone company was a bit too low. Although they did include somewhat of a premium over Eskimo's 1990 sales ($47 million in sales versus $57 estimated worth), I still think that it is worth more than that, for a couple reasons. First, I think that Eskimo Pie's market share and market presence commands a higher price than what Goldman estimated. The case mentioned that at least one of Eskimo's products was in 98% of grocery stores across the US, and that has huge implications in estimating Eskimo's worth. Also, the case said that Eskimo Pie was 3rd in terms of market share with 5.3%. Popsicle had the most of the market with 7.6% market share, and Klondike was second with 5.4%. As we can see, these two factors would give any company a big edge in the frozen novelty industry, which in my mind commands a higher premium. When estimating Eskimo Pie's value, past performance must also be considered. As can be seen from Exhibit 1 in the case, net sales have increased over 50% since 1987 ([47198 - 30,769] / 30,769), and profits have skyrocketed over 1300% since 1987 ([2526-171] / 171). Taking into account all of these factors in to account, I think that as a stand-alone company, Eskimo is worth at least 1.3 times 1990 sales, or $61 million.
Why would Nestle want to acquire Eskimo Pie? Are there potential synergies? Is Eskimo Pie worth more to Nestle than it is worth as a stand-alone company?
I think one of the main reasons Nestle wanted to acquire Eskimo Pie was to obviously obtain a stronger position in the frozen novelty market. The case mentions that Nestle owns "Drumsticks" (maybe they own other frozen novelties, but the case doesn't mention any), and a purchase of this size could definitely make Nestle a frontrunner in the industry. Since Nestle is already involved in frozen novelties,...
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