Substantive Issues
Eskimo Pie is a marketer of branded frozen novelties including it’s own ice cream products, Heath brand ice cream
novelties, and Welch’s frozen juice bars. Eskimo was 84% owned by Reynolds Metals, the makers of Aluminum Foil and other
aluminum products. Reynold’s decided to focus its attention on its core aluminum business and thereby wanted to sell
its stake in Eskimo Pie.
The management of Eskimo Pie attempted to organize a leverage buyout but was unable to obtain sufficient financing. Reynolds
then sold Eskimo Pie to Nestle Foods. However, Nestle was slow to close the acquisition. The delay provided Eskimo Pie’s
management another opportunity to avoid the Nestle acquisition. Instead of a leveraged transaction, the management decided
to sell Reynolds’ shares in Eskimo Pie in a public offering.
The managerial issues in the case focus on the ability of Eskimo Pie to successfully complete the proposed offering and
the price that such an offering would obtain.
Pedagogical Objectives
The Eskimo Pie case presents students with a corporate decision that depends on a simple valuation. The valuation can be
approached using simplified discounted cash flows or by using a variety of comparable public firm trading multiples and the
multiples implicit in the Nestle offer.
Suggested Questions
1. What is your estimate of the value of Eskimo Pie Corporation as a stand alone company?
2. 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?
3. As an advisor to Reynolds, would you recommend the sale to Nestle or the proposed initial public offering?