The Wm. Wrigley Jr. Company: capital structure‚ valuation‚ and cost of capital Teaching Note Synopsis In June 2002‚ a managing director of an active-investor hedge fund was considering the possible gains from increasing the debt capitalization of the Wm. Wrigley Jr. Company. Wrigley had been conservatively financed and at the date of the case‚ carried no debt. The tasks for the student are to: Estimate the potential change in value from relevering Wrigley using adjusted present value analysis
Premium Finance Corporate finance Stock
4) UST Inc. has paid uninterrupted dividends since 1912. Will the recapitalization hamper future dividend payments? UST Inc. has paid uninterrupted dividends since 1912. Assess the impact of the plan on UST’s $ dividend and dividend per share‚ assuming it continues to payout 64% of its earnings as dividends. Exhibit TN-6: Impact of Recapitalization on DividendsDebt = $1 BillionActual 1998Pro-forma 1999 No debtPro-forma 1999 Rd = 7.82Net Income467.9491442.56Shares185.5185.5158.42Earnings per Share2
Premium Dividend yield Stock market P/E ratio
The company is considering a recapitalization where it will issue $1 million in debt and use the proceeds to repurchase stock. Investment bankers have estimated that if the company goes through with the recapitalization‚ it’s before-tax cost of debt will be 11%‚ and its cost of equity will rise to 14.5%. Assuming the company maintains the same payout ratio‚ what will be its stock price following the recapitalization? (Points: 8) After recapitalization: EBIT 1‚000‚000 Less Interest (1
Premium Stock Stock market Dividend yield
on distressed companies‚ merger arbitrage‚ change of control transactions‚ and recapitalizations. They are trying to buy a large stake in the company and thereby force the management to reorganize the capital structure by raising the debt and using it to pay the dividends or buy back the shares. As a part of evaluating they wanted to find if they are inefficiently financed or not. Under the proposed recapitalization‚ Wrigley would borrow $3 billion and use it either to pay equivalent dividends
Premium Stock market Finance Stock
Case2: Leveraged Recapitalization Client: Sealed Air Corporation I.Executive Summary Founded in 1960‚ Sealed Air grew rapidly during its first twenty-five years because many products had strong patent protection. By the mid-1980s‚ the patent of air cellular had run out and competition was getting fiercer. The managers started to pay attention to manufacturing. Therefore‚ the Sealed Air launched World Class Manufacturing to promote manufacturing performance. After a year
Premium Corporate finance Money Free cash flow
it’s uncertain that future research result will jeopardize the tobacco industry. E. There is a chance of a cultural shift against tobacco‚ and UST is unlikely to expand to international market. 2. Why is UST Inc. considering a leveraged recapitalization after such a long history of conservative debt policy? (Your answer should be more qualitative than quantitative!) A. UST wants to increase the
Premium Dividend yield Dividend Tobacco
dividend reduces stock price‚ thereby reducing MVE as well. OCF can also use debt for equity swap thereby increasing leverage very fast. A key feature of recapitalization is also that the target company may issue more stock to its management there by giving them more control after recapitalization. Analysis of the Issue Leveraged recapitalization is the easiest way to change the capital structure of the company if the company can ensure the interest payments of the debts. Although value flows from
Premium Stock Stock market Corporate finance
Course: Corporate Finance Faculty: Prof. Pramod Yadav Submitted by: Jeet K Bhatt Roll No: 14 Assignment – FMC Corp. 1. What were the motivations for FMC corp. to go for recapitalization? a) To eliminate a takeover attempt: The stock was attractively valued and the company had quite a lot of cash ($403 million in 1986) in its hands. It made the company attractive to hostile takeovers. b) To give FMC employees a greater stake in the company: Company showed strong cash on its balance sheet
Premium Finance Corporate finance Takeover
March 11‚ 2014 Ladies and Gentlemen of the Board: In my experience‚ I have seen a steady decline in the use of debt financing. Upon closer inspection‚ I have noticed that your company uses no debt at all. As an experienced hedge fund manager‚ I am concerned that your management is missing valuable opportunities by excluding debt from your capital structure. My partner‚ Susan Chandler‚ and I have done extensive research on how undergoing a capital reconstruction process can benefit you in the
Premium Stock market Finance Stock
FIN 5204 MANAGING CORPORATE CAPITAL INVESTMENT AND CAPITAL STRUCTURE FALL 2007 DEBT POLICY AT UST INC. 1. WHAT ARE THE PRIMARY BUSINESS RISKS ASSOCIATED WITH UST INC.? WHAT ARE THE ATTRIBUTES OF UST INC.? EVALUATE FROM THE VIEWPOINT OF THE BONDHOLDER. Over the years‚ UST has been a dominant producer in the tobacco industry‚ specifically the moist tobacco industry. Even though the past strategy with UST has entailed raising the prices of its products on a regular basis‚ the company still shows
Premium Dividend yield Revenue Finance