Wrigleys Case Study

In: Business and Management

Submitted By momo1962
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Wm. Wrigley Company Case Analysis
Adrienne Johnson, Ramona Rhodes, Makpal Shotbassova
Webster University
FINC 5880: Corporate Finance
FALL I TERM
September 10, 2014

Author Note
Certificate of Authorship: This paper was prepared by me for this specific course and is not a result of plagiarism or self-plagiarism. I have cited all sources from which I used data, ideas, or words either quoted or paraphrased. Introduction Blanka Dobryn is a managing partner of Aurora Borealis LLC. This hedge funds goal is to acquire a large stake in the Wrigley Jr Corporation. Once this happens then Aurora borealis LLC will encourage WM Wrigley Jr to reorganize the capital structure. The Wrigley Company at this point does not have any debt. Dobryn, is thinking that they can make this company more valuable if they raise their debt and use that money to either pay dividends or repurchase their stocks. (Brunner, 2010) Our job today is to find out the best way to go about restructuring the company using different financial strategies that will put the company at minimal risk. Effects of using debt to recapitalized In researching options, there are a few things that should be considered. Assuming that everything will be positive, there are great benefits to restructuring. The EPS would increase because there would be less shares outstanding after the buyback. The market would look favorable upon that, thus increasing the share price. If Wrigley is able to borrow at a lower rate this will affect the WACC. Meaning, they obtain debt at a good credit ratings, which affects the tax shield as the WACC is lower. In actuality the firm increase in value by the benefit of the tax shield. (Brigham, 2014) If the hedge fund is able to convince the Wrigley Jr company to use debt to either pay dividends or buyback shares then the hedge fund will be able to complete its…...

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