Eskimo Pie Case Report

1. What is your estimate of the value of Eskimo Pie Corporation as a stand-alone company?
Based on Goldmans project, we made the free cash flow model. See Exhibit attached.

2. Why would Nestle want to acquire Eskimo Pie? Are there potential synergies? Is Eskimo Pie worth more to Nestle than it is worth as a stand-alone company?
We think one of the main reasons Nestle wanted to acquire Eskimo Pie was to obviously obtain a stronger position in the frozen novelty market. The case mentions that Nestle owns Drumsticks (maybe they own other frozen novelties, but the case doesnt mention any) and a purchase of this size could definitely make Nestle a frontrunner in the industry. Since Nestle is already involved in frozen novelties, there are definitely potential synergies to be had from the acquisition. Clearly management and most of the workforce from Eskimo Pie wouldnt be needed because of duplication, Eskimo Pie distribution costs could be virtually eliminated (because Nestle and Eskimos products both go to the same place), and of course marketing expenditures would be reduced. As a result of these synergies as well as the items mentioned in question 1, I do think that Eskimo Pie is worth more to Nestle than as a stand-alone company. Perhaps as an acquisition, Eskimo might be worth 1.4 to 1.5 times 1990 sales, or $66 to $71 million.

3. As an advisor to Reynolds, would you recommend the sale of Nestle or the proposed IPO?
We would recommend that Reynolds keep trying for the IPO. Like I said in question 2, I dont think Nestles offer is good enough. Perhaps if they increased their bid, then the acquisition should be considered. Assuming that the offer stays the same, however, an IPO would be best for the following reasons: The company could remain independent and continue to make all the decisions.

The IPO market was hot at the time, so the offering could yield nominal results for Eskimo. An IPO would avoid the complications and conditions that Nestle wanted to attach to its purchase of Eskimo Pie. Overall, I think the IPO would have more benefits than a sale to Nestle, and thats why I would recommend it.