William Wrigley Jr. Company: Capital Structure

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The William Wrigley Jr. Company: Captial Structure, Valuation, and the Cost of Capital Thomas A. Dotter University of the Incarnate Word Introduction In the case study, “The William Wrigley Jr. Company: Captial Structure, Valuation, and the Cost of Capital” the author, Robert Bruner, examines how Blanka Dobrynin, managing partner at Aurora Borealis, explores the opportunity to persuade Wrigley’s board to complete a leveraged recapitalization through a dividend or major share repurchase. Through her active investor strategy, Blanca is trying to increase the value of investment in Wrigley. Blanca’s objective would be to create ultimately new value in Wm. Wrigley Jr. corporation and thus increase the value of Aurora Borealis’…show more content…
6. Voting control by the Wrigley family? k. Stulz demonstrated the correlation between management’s control of voting rights and its impacts shareholder wealth. Specifically, there is an optimal level of management’s control of the right to vote and its corresponding impact on shareholder’s wealth. Management can also change the fraction of the votes it controls through capital structure changes (Stulz, 1988). l. Another result from Stulz’ mathematical analysis was the managers’ investment in their firm and change in debt-equity ratio affects the potential bidder only because it changes management’s control of voting rights (Stulz, 1988). Stulz’ analysis also demonstrated the probability of a hostile takeover attempt is negatively impacted to the target’s debt-equity ratio and vice versa (Stulz, 1988). In other words, an increase in the debt-equity ratio can make a takeover less likely due to a decrease in the bidder’s attempt for control and the effect on α (Stulz, 1988). m. An increase in the fraction of α of the voting rights controlled by management decreases the expected value of the bid to the bidder (Stolz, 1988). Furthermore, from a bidder’s perspective, the optimal premium is an increasing function of the fraction of α of the voting rights of the target controlled by management as long as α is not too

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