Eskimo Pie Corporation :: Business Management Essays

Eskimo Pie CorporationIntroductionReynolds Metals is the majority owner of the ice wawl company Eskimo Pie Corporation and has decided to sell this company. Nestle Foods provided the highest offer of $61 Million. Due to delays of the Nestls purchase, Reynolds Metals has take into consideration the IPO proposal of David Clark, president of Eskimo Pie Corporation, alternatively than selling the company to Nestle Foods (Case Study, 2001). This analysis will identify the current value of the company at a stand-alone value and explain wherefore Nestle Food would want to buy this company and the synergies involved for their reasoning. We will also discuss who will benefit if Reynolds Metals were to sell to Nestle or were to do an IPO. Finally we will provide a recommendation for Reynolds Metals that will be most beneficial to the company financial needs. Stand-Alone ValueThere are many valuation methods that could be used to evaluate this company. Finding a method that valuates the st and-alone value is difficult. The stand-alone value should be dependent upon the tightens own assets and projected future income. We decided to evaluate this company based upon two methods The Discounted Cash fly the coop Method and the Comparable Companies Method. Discounted Cash issue Method takes the visualise free cash flows during forecasted horizon. Then we estimate the cost of capital (weighted average cost of capital) and estimate continuing value (value after forecast horizon). The future value is discounted to the present value. We than add back cash ($13 Million) and non-current assets and deduct total debt. With the information provided several assumptions had to be made to obtain likely values (life period of 30-years, Capital expenditures not to exceed $1 million dollars, depreciation to stay constant at $1.15 Million and a discounted rate of 10%). Based on our analysis, the company has a stand-alone value of $51 Million at the end of fiscal year end 1990 with a take in present value of cash flows of $33 million that does not include the cash and non-current assets a cash of and non-current assets. The greatest risk using Discounted Cash Flow Method is all the assumptions that were made. Without knowing and having complete information this method could report underestimated or overstatement figures. The second method we used to analyze the firms value was the Comparable Companies Method. We used the historical figures as of 1990 and Goldmans Sachs Projections. With an average of 22.