Wm. Wrigley Jr. Company Case Analysis

Dobrynin works at Aurora Borealis, and has a typical mode of operations to identify opportunities for corporate structure, invest significantly in the stock, and then finally (if chosen) the process of persuading the management team.

Target firms such as Wrigley’s can implement these strategies themselves, but before doing so they need to recognise the opportunity that exists. They may be clearly 'set in their own ways' and thus do not see what the opportunity cost is. On the other hand Wrigley’s' may realise that this opportunity exists, but may not simply wish to implement these strategies, as they conflict with company policy (i.e. to remain liquid). These strategies may also conflict with the companies longer term goals.

Dobrynin's strategy seems to be good for the shareholders in two ways; Firstly, capital restructuring will have a positive impact on the value of the firm, and will be in the interest of Wrigley’s' as it creates a tax shield which can increase the value of the firm. This in turn will increase the price of each individual share, thus creating a profit for those shareholders who have held the stock. Secondly, it would be good for those shareholders who are prepared to sell the stock back to Wrigley’s in the share recapitalisation. This is due to a premium that would be typically offered when re-bought. This gives those shareholders a considerable increase on their capital gains.

If wriggles borrow this $3billion, the levered beta will also be impacted. The unlevered beta currently existing in the company is equal to 0.75, however after stock recapitalisation, the beta will become levered and thus increase to a value near 0.9. This has many implications as the firm may find more costly to access capital in the future through capital markets as they will have to pay a higher premium for an investor to consider sacrificing their money.

The current weighted cost of capital (before debt) is equal to the cost of equity. This is because the cost...