Team 14
Rado Oper
November 19th, 2009
Contents
Objectives 1
Management Summary 2
Active Investor Strategy 2
Effects of $3 Billion in New Debt for Dividend or Stock Repurchase 2
a. Outstanding Shares 2
b. Book Value of Equity 2
c. Price per Share 3
d. Earnings per Share 3
e. Debt Interest Coverage Rations and Financial Flexibility 3
f. Outstanding Shares 3
Wrigley’s Current Weighted Average Cost of Capital (WACC) 3
Debt Proceeds to Pay a Dividend or Repurchase Shares 4
Wrigley’s Recapitalization 4
Should Wrigley’s directors undertake the recapitalization? 5
Appendices 6
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Objectives
This report seeks to answer the following five questions about William Wrigley Jr.:
⦁ In the abstract, what is Blanka Dobrynin hoping to accomplish through her active-investor strategy?
⦁ What will be the effects of issuing $3 billion of new debt and using the proceeds either to pay a dividend or to repurchase shares on:
⦁ Wrigley’s outstanding shares?
⦁ Wrigley’s book value of equity?
⦁ The price per share of Wrigley stock?
⦁ Earnings per share?
⦁ Debt interest coverage ratios and financial flexibility?
⦁ Voting control by the Wrigley family?
⦁ What is Wrigley’s current (pre-re-capitalization) weighted-average cost of capital (WACC)?
⦁ What would you expect to happen to Wrigley’s WACC if it issued $3 billion in debt and used the proceeds to pay a dividend or to repurchase shares?
⦁ Should Blanka Dobrynin try to convince Wrigley’s directors to undertake the recapitalization? Management Summary
The analysis identifies both risks and benefits associated with undertaking the recapitalization for Wrigley. Given the reduction WACC, Wrigley should undertake the recapitalization. The conclusions reached in the following will illustrate the effects that the recapitalization will have on both equity in
