Ipo - Eskimo Pie Corporation Essay

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Eskimo Pie Corporation
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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The greatest risk using Discounted Cash Flow Method is all the assumptions that were made. Without knowing and having complete information this method could report underestimated or overstatement figures.
The second method we used to analyze the firm's value was the Comparable Companies Method. As shown in Table 1, we used the historical figures as of 1990 and Goldmans Sach's Projections. With an average of 22.8 times the value, Eskimo Pie has a value of $57 million at the fiscal year end of 1990. The Comparable Companies Method is more accurate then the Discounted Cash Flow Method because assumptions are not being used and the company's value is compared to industry values. The risk of using this method is that the value is subject to short-term fluctuations and assumes all companies can generate the same growth.
Table 1

Other methods not considered are the Book Value Method and Economic Method. Book Value Method does not take in to consideration the market value of the company. Eskimo Pie true value is based on the name of the product and not the historical value of assets. Eskimo Pie generates high cash and does not need to invest in fixed assets to create growth.
Nestle Foods The purpose of Nestlé's proposal of $61 Million is to consolidate its current operation Drumstick with Eskimo Pie operations. Buying Eskimo Pie will lower overhead cost by eliminating Eskimo Pie management, utilizing existing facilities,
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