Ipo - Eskimo Pie Corporation Essay

1354 Words Sep 3rd, 2005 6 Pages
Eskimo Pie Corporation
Introduction
Reynolds Metals is the majority owner of the ice scream 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 Nestlé's purchase, Reynolds Metals has take into consideration the IPO proposal of David Clark, president of Eskimo Pie Corporation, rather 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 why 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 create an IPO.
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Nestle is valuing the company based on acquisition synergy (Case Study, 2001).
By combining the company value on a stand-alone basis of future cash flow (non-synergistic buyer) with the cash flows related to the apparent synergistic benefits (related to Drumstick), Nestle determined its purchase price. By creating a synergy value can creates a risk that the purchase price might be overstated because it tends to overestimate the magnitude of timing of synergistic cash flows while underestimating their associated risks. It may also inadequately evaluate an appropriate split of synergistic value between buyer and seller. The benefit of doing a synergy acquisition is that it can evaluate the sensitivity of their value to changes in both the timing of projected cash flows and the key variables affecting cash flow magnitude (Jaffe, Jeffrey; Ross, Stephen A.; and Westerfield, Randolph, 2001). Example of synergy is when GM bought a foreign car automotive called Daewoo. Combining GM with Daewoo created a global synergy and allowed GM to enter a foreign market and be more profitable. Most of the profits are not expected for a few years down the road, however GM expects to take 26% of South Korea's market in the near future. Like all acquired synergies, only time after the acquisition will provide if

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