Case Memo of The Wm.Wrigley.Jr.Company

In the case Blanka Dobynin was are trying to bribe a large stake in the attach to and thereby force the anxiety to reorganize the keen structure by raising the debt and using it to pay the dividends or buy back the shares. The strategy pull up stakes benefit from the price appreciation from subscriber line repurchase or dividend payment. Wrigley is a starring(p) producer and distributor of chewing gums, and it has a advantageous position compared to the other intentness players with very high brand rightfulness and strong presence globally.It has little chore essay as the market is modify and anti-cyclical, which was reflected in its equity beta of 0. 75 as of 2002. Wrigley has zero debt as of 2002 and thereof no financial adventure. Issuing 3 billion debt leave alter the capital structure and increase it WACC. The WACC before debt is 10. 11% thinkd from CAPM, given the unlevered beta equals 0. 75, risk free rate equals 10 course of study Treasury yield which is 4. 8 6%, and risk support of 7%.After taking on the debt, the D/E ratio calculate from debt over essence equity gives more or less 70%, and the levered beta becomes 1. 07. Using the 13% cost of equity given in the case, the WACC after recapitalization forget be round 9. 15%. Given 232. 441 one thousand thousand shares it style market capitalization of almost 13. 26 billion US dollars. The tax cuticle is roughly 1,200 million, which allow for immediately be reflected into the bare-ass share price beneath perfect capital market assumptions. The new share price will equals to 56. 37+5. 16 = USD 62. 23 per share.Adding the leverage of USD 3,000 million under BB rating assumption will significantly reduce the net income of the company therefore reduce the EPS. This effect will partially be offset in case of share repurchases, since decrease of the human action of shares outstanding associated with share repurchase will push EPS up. In conclusion, recapitalization through 3 billion o f debt and same share repurchase will be preferable for WM. Wrigley junior Company shareholders, since it will in total increase their wealth by 1. 2 billion which is a fair premium for the risks associated with leveraging the company.