Eskimo Pie Harvard Case Solution & Analysis

Advantages and disadvantages of selling Eskimo Pie to Nestle:

            The advantages that will flow to Eskimo Pie through selling to Nestle are as follows.

• The process is quick as it will not take any further time for payment. The owners of the company are family members; therefore they can have money in hand very soon.
• The offer price is most favorable as compared to the other offers given by the potential acquiring companies.
• The sales are highly certain. The shareholders are getting around $14 per share for their holding in Eskimo Pie.
• No any further costs are involved to undertake the deal.
• The acquisition can increase the market share and competitive position of the company because of a well known parent company that has a high reputation in the food industry.
  

  eskimo pie case solution

The disadvantages for selling are as follows.

• The first disadvantage is that it will take all the control from current owners and owner may not wish to sell their whole stake to any other company.
• The price may not be acceptable to the shareholders because it is lower than that price of free cash flow model.
• Nestle is taking all tax advantages with it and it is not paying extra for tax advantages as it is explained that it is paying more because of synergy advantage.
• Nestle is reluctant to bear any reputational damage and an event of breach of contract with regulatory authorities in Eskimo Pie has occurred that demands a cash outflow of $300,000.
• The future growth in the profit is expected, therefore it is better to have benefited with the current owners rather than leaving these benefits for new owners i.e. nestle.

Advantages and disadvantages of Eskimo Pie’s initial public offerings:

            The advantages of IPO are as follows.

• The first advantage is that the future growth in the earnings is expected, therefore it is better to hold the company for now and sell it after some time when the current owners have enjoyed the benefits that are about to flow to the company.
• The second benefit is that there are chances that it can have a share price of $16, as if it is possible, then it has a chance to have an extra share offer than Nestle.
• Whatever the price offer is there in an IPO the cash inflows will flow to the entity that can be used for further expansion and advertisement to increase the market share and the profitability.
• The current holders of the company have better knowledge about the industry and the company operations therefore they can operate the company very well.
• The cash raised can be used by the parent company can be invested at any other options and earnings from both sides can flow to the current parent company of Eskimo Pie.

There are some disadvantages to go through the IPO.

• The IPO price is highly uncertain and it is possible that it cannot even get $14 per share, which is the current offer by Nestle.
• The process is slow and time consuming, therefore the time value of money may make IPO unattractive due to current day offer of Nestle.
• IPO comes with some costs and the net share price may be lower than the offer of Nestle due to extra costs that company has to bear to make thing IPO successful.
• The offer price is most favorable as compared to other offers to the company from other potential acquiring companies.

Business valuation through different valuation methods:

            The business values from different methods give different value because of change in their inputs. The different valuation model gives bother acquiring company and the target company to bargain on those prices derived through different models.Eskimo Pie Case Solution

Free cash flows:

            The free cash flow model is based on the current and future cash inflows of the company. This model has many assumptions as the first assumption is that the required return of the current shareholders and debt holders remain same for the time of perpetuity. The growth rates are based on the past performance and they are considered to be constant for the period of perpetuity and many more assumptions.

            The value through free cash flow valuation model is $69 million and per share price of $15.84. The share price is based on the assumption that the share price is $14 at the value of $61 million..............

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

Related Case Solutions & Analyses:

Bosch India’s Starter Motor and Generator Division: Pioneering a Network Form of Organization Project Implementation Accessible Innovation: Striking the Balance Between What’s New and What’s Right The Innovator’s Dilemma: Understanding the Psychology of Adoption Xiaomi, Inc.: The Rise of a Chinese Indigenous Competitor Business Case Critique CHS Inc.: Cooperative Leadership in a Global Food Economy Sampoorn Foods and Feeds Limited Tavazo Co. Xilinx, Inc. (A)