Mergers and Acquisitions - Nestle, Goldman Sachss, and Eskimo Pie Corporations - Case Study Example

The company with the largest market share was Popsicle. It commanded 7.6% of the market. Secondly, according to the case, Eskimo pie had at least one of its products in 98% of the grocery stores located across the United States. As such, this has considerable implications in determining the worth of Eskimo pie. Therefore, Eskimo’s market presence and market share across the United States commands a better higher price than what is estimated by Goldman. Having a larger market share and presence in any industry gives the company an edge over its competitors. Therefore, it should deserve and attract a higher premium than what was offered by Goldman and Nestle.

Past performance is vital when estimating the value of Eskimo pie. Since 1987, the company’s net sales increased by over 50 % ((17198-30769) ÷ 30, 769). Subsequently, profits of the company increased by over 1300% over the same period ((2526-171) ÷171). This is according to the data depicted in Exhibit 1.

By evaluating and considering these factors in-depth, the worth of Eskimo pie would be 61 million dollars or 1.3 times more than the sales of 1990 as a stand-alone company.

2.There are many reasons a company might want to acquire another company. The primary reason nestle wanted to acquire Eskimo Pie was to possess and establish a stronger and robust position or presence in the frozen novelty market. According to the case, nestle owns drumsticks. I can take this to mean that maybe nestle owns other frozen novelties, but the case does not specify or mention any. By purchasing Eskimo pie, nestle would be a frontrunner in the industry by having a larger presence. There are potential synergies to be gained from acquiring Eskimo pie. This is because of the involvement of Nestle in the frozen novelties too. In my opinion, Eskimo is worth more to nestle as an acquisition than as a stand-alone company. This is due to the following reasons. Most of the workforce and management of Eskimo pie would not be needed in order to avoid duplication of duties. Since the products of Eskimo and nestle target and go to the same market, the distribution costs of nestle would be nearly eliminated. Additionally, the marketing expenditure will drop. I am of the opinion that Eskimo is worth more to nestle than as being a stand-alone company due to these synergies. Eskimo’s worth might be $66 to $71 million or 1.4 to 1.5 times more than the sales of 1990 as an acquisition.

3.I would recommend the proposed IPO rather than a sale to nestle. As I mentioned in the second question, Nestle’s offer is not good enough for the worth of Eskimo pie. However, the acquisition should be considered if nestle decides to increase its offer. Under the assumption that the bid or offer remains the same, an IPO would be preferable. This is due to the following reasons:

• By favoring an IPO, Eskimo pie will avoid the conditions and complications that nestle would want to attach to its acquisition contract (Ruback, pg.6)
• The independence of Eskimo won’t be threatened. As such, it will remain independent and continue making all its decisions.
• Eskimo will yield nominal results if it decides to offer an IPO. This is because the market was hot during that time.
• Because of these factors, I am of the view that an IPO WOULD BE More beneficial to Eskimo pie than a sale to nestle. As such, I recommend an IPO.