Wrigley Restructuring Case

11

The WM. Wrigley Jr. Company

Case Analysis

Background Information:

The Wrigley Company is the world's largest manufacturer of chewing and bubble gum and home to some of the best-known brands in the world. Though listed on the New York Stock Exchange as a publicly traded company since 1923, the Wrigley family has led the company since it was founded by William Wrigley Jr. in 1891. Four generations of Wrigley’s have led the company, which has its global headquarters in the famous Wrigley Building in Chicago. Wrigley owes its success to a commitment to quality stretching back 110 years, and a spirit of innovation that continues to this day.

Wrigley Company has returned a tremendous amount of wealth back to the shareholders over the years, but interest rates are at their lowest point in 50 years. Blanka Dobrynin, managing partner of Aurora Borealis LLC suggests that Wrigley Company should borrow $3 billion at a credit rating between BB and B, to yield 13%. The reasoning behind the restructuring is as follows. Wrigley Company is a mature company that uses zero debt, but it has a leading market share in an industry that is recession proof (chewing gums.) The company should utilize more debt in order to increase shareholder’s wealth.

If the debt financing for Wrigley Company was to be approved, there will be changes in the following:

* Outstanding Shares

* Credit Rating

* Share prices

* Book value of equity

* WACC

* EPS

* Voting Control

The $3 billion in debt suggested by Blanka Dobrynin will be utilized in either paying it all in dividends or a share repurchase. The effects of the share prices for both methods will be discussed in the findings section.

It is to note that Wrigley Company prior to this re-capitalization had no debt. The post-capitalization market weighted for the restructure of the company would be composed of 78% in equity and 22% in debt financing. There may be a financial distress call or signaling effects...