The Wm Wrigley Jc Company

Table of Contents

Introduction 1

Strategy of the Case 1

Cost of Capital 1

Impact on Value, Share Price & EPS 3

Debt Rating 3

Impact on Voting Control 3

Analysis of Exhibit 8 4

Introduction

Aurora Borealis LLC targets firms that have an opportunity to restructure its capital. They then invest heavily in the company’s stock. Once they have a large ownership position with the company, they then have a greater say in persuading upper management and the board of directors. They try to persuade these individuals to create more value to the shareholders by undergoing a capital restructuring.

The William Wrigley Jr. Company (Wrigley) is being targeted by Blanka Dobrynin, a managing partner of Aurora Borealis LLC. She believes Wrigley is the right company to persuade to restructure because of its leading market share in a stable low-technology industry, and they have no debt. Blanka wants Wrigley to borrow $3 billion and use it to pay a dividend of that amount, or repurchase $3 billion of shares.

Strategy of the Case

The strategy of the case revolves around how should they use the $3 billion of debt to restructure its capital that would add the most value for the shareholders of Wrigley. The decision of how to use the debt will impact the firm’s stock price, cost of capital, debt coverage, earnings per share and voting control. The impact of these changes from the capital restructuring should be analyzed to confirm that they are improving the value of the company and that they align with the company’s goals and strategic direction.

Cost of Capital

Cost of capital will be calculated using the weighted average cost of capital formula. As Chandler states in the case, the maximum value of the firm was achieved when the weighted average cost of capital is minimized. The weighted average cost of capital (WACC) is used in finance to measure a firm's cost of capital. This has been used by many firms in the past as a...