Case ID: 202037
Solution ID: 531
Words: 1714
Price $ 75

Eskimo Pie Corp Abridged Case Solution

Case Solution

In the beginning of 1991, Reynolds Metals, the producers of aluminum goods, made a decision to trade its holding of Eskimo Pie, a promoter of branded frozen novelties. Reynolds had a proposal from Nestle to purchase Eskimo Pie. However, Reynolds made a final decisionof making an IPO of Eskimo Pie shares instead of selling it.

Excel Calculations

Monthly Stock Returns for the S&P500 Composite and for Comparable Companies

Annualized Returns

Beta 1

Beta 2

Beta 3

Cost of equity Calculations

Value per Share Calculation

1. Using updated forecast for 1991 by Wheat First and for the later years using the margins set by Golman Sachss

2. Only using cash flows in 1991, projected by Wheat First

Comparable Companies Valuation

Questions Covered

What is your estimate of the per share value of Eskimo Pie using the Discounted cash flow approach?

How does the value you estimated using discounted cash flow approach compare to the market value of the comparable companies?

Use multiples of sales and cash flows

Consider multiples implicit in Nestle’s offer for Eskimo Pie

Why would Nestle want to acquire Eskimo Pie? Is Eskimo Pie worth more to Nestle than it worth as standalone Company?

As an advisor to Reynolds, would you recommend the sale to Nestle or the proposed initial offering?