Wrigley Case Grp 5

7/15/2019 Wrigley Case Grp 5

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The Wm. Wrigley Jr. Company:

Capital Structure, Valuation,

and Cost Capital.

1Wm. Wrigley Jr. Company



Team Members

JOHN AGYARKO MBAE 11050170

GEORGE GARBRAH HOOPER MBAE 11050224

KOFI DANSO APPIAH RMBA 11060044 DOLORES MARIE B. GYADER RMBA 11060015

AUGUSTINE RASITO AKWETEA RMBA11060175




Presentation Outline

Introduction Central Issue

Effect of Leverage Recapitalization on

Share Value Debt Rating

Cost of Capital (WACC)

Reported EPS

Voting Control

Conclusion & Recommendation




Introduction Founder- William Wrigley Jr.

Wm. Wrigley Jr. Company was founded in1891

Initial Brands are Spearmint and Juicy

Fruits Distributes to 180 countries and has 10,

800 employees

Listed on the New York Stock Exchangeunder the ticker WWY




Introduction (Cont’d) Blanka Dobrynin is a management

Partner of Aurora Borealis Company(Hedge Fund Company)

The company utilizes a strategy called

active investors The strategy aims at affecting stock prices




Central IssuesThe impact of $3.0 billion debt at 13%

per annum maturing after ten (10)years in Wrigley Company on thefollowing?

Share Value Debt Rating

Cost of Capital

Reported Earnings per Share Voting Control

and Aurora Borealis Company’s (HedgeFund Company) decision to invest inWrigley Company. 6Wm. Wrigley Jr. Company



Impact on Share Value


Value of Levered Firm

FCF1 = EBITD

r EU = CAPM =Rf +B(Rm-Rf

)

VU =Value of UnleveredFirm VITS =Value of Interest Tax Shield

VL =Value of Levered Firm

http://localhost/var/www/apps/conversion/tmp/scratch_5/IMPACT%20ON%20VALUE%20OF%20SHARE.xlsx



Impact on Debt Rating

Wm. Wrigley Jr. Company 8

Current debt rating for Wrigley Company

is between BB and B (This is anassumption from the case because thefirm is not levered yet).

Wrigley Company will move from anassumed rating of BB or B to a computeddebt rating of AA.

An AA debt rating will reduce thecost of debt of future borrowings.

http://localhost/var/www/apps/conversion/tmp/scratch_5/IMPACT%20ON%20DEBT%20RATING.xlsx



Impact on Cost of Capital


r EL = Cost of LeveredEquity r EU = Cost of Unlevered Equity

r D = Cost of Debt MVD= Market Value of Debt

MVE= Market Value of Equity

http://localhost/var/www/apps/conversion/tmp/scratch_5/IMPACT%20ON%20COST%20OF%20CAPITAL.xlsx



Impact on Earnings Per Share


The primary goal of financialmanagers is to maximize the wealth

of the shareholders.

The higher the EPS the better for shareholders wealth.

http://localhost/var/www/apps/conversion/tmp/scratch_5/IMPACT%20ON%20EPS.xlsx



Total Shares

Outstanding232,441,000

OrdinaryShares

189,800,000

Others (79%)

149,942,000

Wrigley (21%)

39,858,000

Class BShares

42,641,000

Wrigley (58%)

24,731,780

Other (42%)

17,909,220

Impact on Voting


Voting Control For Wrigley Family 46.60

%

Voting Control For Investors 34.79

%

http://localhost/var/www/apps/conversion/tmp/scratch_5/IMPACT%20ON%20VOTING%20CONTROL.xlsx



onc us on anRecommendation

The deal is favourable for Aurora Boraalis(hedge fund company) should Wrigley accept

the debt proposal. This will increase the price to$292. But from the long-term growthperspective of the firm, the best policy would beto re-invest in the firm for growth in form of sales or pursuing more profitable acquisitions.The share buyback would although raise theprice of the firm, but if control of the firm is notan issue of urgency and the management donot plan an appropriate utilization of theretained earnings and the new debt, then thecompany should refrain from adding onadditional debt. Moreover, using debt to payoutthe dividends would result in decrease of thevalue of the firm and hence the share price

using assuming market to be efficient.Wm. Wrigley Jr. Company 12




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Wrigley Case Grp 5