Suggested Discussion Questions:
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3. Based on your valuation of HFC, do you feel it was fairly valued by the market before the announcement of the sale? Are the Nestle–Cadbury Schweppes and Wrigley bids fair to their own shareholders (i.e., what needs to happen in order for these bids to create value for the bidding companies)? I think that Hershey’s Foods Corporation was fairly valued by the market before the announcement of the sale. I think that many of the shareholders were not happy with the selling because it tied into the community. I think the shareholders knew that it was a good idea because they would make more money and be able to diversify the company from their sale. I do not think that Nestle-Cadbury Scweppes and Wrigley bids are fare to their shareholders because I do not think that they are getting as much say as they should within the company. In order for these bids to create more value for the bidding companies I believe the company needs to diversify. I think their best option would be stock repurchase. This would allow the to have less stocks outstanding and make the company more profitable.
Final Case Exam Questions:
1. What is the nature of Wrigley’s business? Is this a healthy, growing company? What would a major recapitalization of Wrigley signal to investors? (15 points)
2. What will be the effect of issuing $3 billion in new debt and using the proceeds to repurchase shares on:(a)Wrigley’s market value per share? (15points) (b)Wrigley’s number of outstanding shares (15 points)? (c)Wrigley’s book value and market value of equity (15 points)?
3. Would book value and market value weights change as a result of the recapitalization? (10 points)
4. What is Wrigley’s WACC before the repurchase? (15 points)
5. What will be the new WACC if the repurchase is undertaken? (15 points)