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Finance 450 at EMU with Dr. Moeller

Eskimo Pie
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Eskimo Pie

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?