Capitalization Suggestion for Wm. Wrigley Jr

The Wm. Wrigley Jr. Company: Capital Structure, Valuation, and Cost of Capital

1. Background of Wm. Wrigley Jr. Company

Wm. Wrigley Jr. Company is a well-known leader that manufactures confections such as gums, mints, hard and chewy candies, lollipops, and chocolates. The company was founded in 1891 and its headquarters is based in Chicago, Illinois. It has operations in over 40 countries and distributes many of its world famous brand such as Double mint, Extra, Skittles, Orbit to more than 180 countries.

2. Overview of Case Study

Blanka Dobrynin, who is a managing partner of Aurora Borealis LLC, plays the role of a financial entrepreneur by seeking to profit from companies that display potential for corporate restructuring. A typical trait in these companies is that they possess unused debt capacity relative to their risk. Her strategy is to first identify these companies’ possible less than optimal capital structure, and if there happens to be any inefficient structures, she would invest heavily in the shares of these companies before persuading the management and directors into restructuring.

Wm. Wrigley Jr. Company is one such company that happens to be the current target of interest because Dobrynin believes this company was not fully maximizing its debt capacity and that there is a high possibility for opportunities in recapitalization through leveraging. Hence by persuading the directors and management into using more efficient polices, Dobrynin seeks to earn a significant investment return.

2.1 Statement of Problem

Wm. Wrigley Jr. Company is not using any debt in its current capital structure. Dobrynin and her associate, Susan Chandler came to a conclusion that Wrigley should borrow $3 billion of debt under the proposed leveraged recapitalization.

This report seeks to discuss the consequences of the introduction of this amount of debt to Wrigley’s capital structure and if Wrigley should as a result of the team’s findings take on the proposed...