Value of Eskimo Pie Corporation

Eskimo Pie

1. What is your estimate of the value of Eskimo Pie Corporation as a stand-alone company?

In my opinion, Goldman's estimate of Eskimo Pie's worth as a stand-alone company was a bit too low. Although they did include somewhat of a premium over Eskimo's 1990 sales ($47 million in sales versus $57 estimated worth), I still think that it is worth more than that, for a couple reasons. First, I think that Eskimo Pie's market share and market presence commands a higher price than what Goldman estimated. The case mentioned that at least one of Eskimo's products was in 98% of grocery stores across the US, and that has huge implications in estimating Eskimo's worth. Also, the case said that Eskimo Pie was 3rd in terms of market share with 5.3%. Popsicle had the most of the market with 7.6% market share, and Klondike was second with 5.4%. As we can see, these two factors would give any company a big edge in the frozen novelty industry, which in my mind commands a higher premium.

When estimating Eskimo Pie's value, past performance must also be considered. As can be seen from Exhibit 1 in the case, net sales have increased over 50% since 1987 ([47198 - 30,769] / 30,769), and profits have skyrocketed over 1300% since 1987 ([2526-171] / 171).

Taking into account all of these factors in to account, I think that as a stand-alone company, Eskimo is worth at least 1.3 times 1990 sales, or $61 million.

2. Why would Nestle want to acquire Eskimo Pie? Are there potential synergies? Is Eskimo Pie worth more to Nestle than it is worth as a stand-alone company?

I think one of the main reasons Nestle wanted to acquire Eskimo Pie was to obviously obtain a stronger position in the frozen novelty market. The case mentions that Nestle owns "Drumsticks" (maybe they own other frozen novelties, but the case doesn't mention any), and a purchase of this size could definitely make Nestle a frontrunner in the industry. Since Nestle is already involved in frozen novelties, there are definitely potential synergies to be had from the acquisition. Clearly management and most of the workforce from Eskimo Pie wouldn't be needed because of duplication, Eskimo Pie distribution costs could be virtually eliminated (because Nestle and Eskimo's products both go to the same place), and of course marketing expenditures would be reduced. As a result of these synergies as well as the items mentioned in question 1, I do think that Eskimo Pie is worth more to Nestle than as a stand-alone company. Perhaps as an acquisition, Eskimo might be worth 1.4 to 1.5 times 1990 sales, or $66 to $71 million.

3. As an advisor to Reynolds, would you recommend the sale of Nestle or the proposed IPO?

I would recommend that Reynolds keep trying for the IPO. Like I said in question 2, I don't think