shareholder benefit. Is the proposed recapitalization the best response? There are two answers to this question. USG’s board debated a number of alternatives. They considered repurchasing additional stock‚ selling equity to a friendly third party or selling the entire company to a friendly acquirer. In fact‚ U.K. based BPB industries was a possible White Knight". However‚ analysts have also drawn attention to the fact that the proposed recapitalization would burden the company with debt‚
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Leveraged Recapitalization (1989) Case Study Abstract The following report outlines the basics of a leveraged recapitalization‚ the benefits and consequences of a leveraged recapitalization‚ and ultimately Gator Consulting’s recommendations for when and how to use leveraged recapitalization. Much of this discussion is explained by citing a case study involving Sealed Air Corporation as a way to demonstrate a specific positive instance in the use of leveraged recapitalization. Leveraged
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debt yet. Aurora Borealis is trying to convince Wrigley to do a leveraged recapitalization through a dividend or share repurchase. So Wrigley has to make decisions on whether or not to borrow $ 3 billion for recapitalization. Question Based on the above situation‚ there are few questions that arise as seen below: ●Whether the recapitalization would be good for the company’s development in the long run? ●After borrowing
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architecture and fine arts‚ and nursing. There is also a graduate school and a conservatory of music. The University of Santo Tomas (UST) is the oldest existing university in Asia. In terms of student population‚ it is the largest Catholic university in the world in a single campus. The Pontifical and Royal University of Santo Tomas‚ The Catholic University of the Philippines (UST‚ Filipino: Unibersidad ng Santo Tomas‚ Spanish: Universidad de Santo Tomás‚ Latin: Universitas Sancti Thomae; colloquially‚
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debt would depend on her assessement of wrigley’s debt rating after recapitalization and on current capital market rates. WACC before recapitalization Wrigley’s pre recapitalization WACC is 10.9%‚ the cost of equity assumes a risk free rate of 5.65% for 20 years US treasuries in the case exhibit 7; a risk premium is assumed 7% (or 5%)‚ and uses Wrigley’s current beta of 0.75 (case Exhibit 5). 4. WACC after recapitalization The increase in leverage will affect Wrigley’s WACC in at least three
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fall in stock prices than the long term investment in growth and stability of the firm. The hedge fund plans to short the stock at the moment it rises to the optimal level due to strong signals the hedge fund is trying to pursue. Effect of recapitalization on WACC The current WACC of Wrigley is 10.9%. Since it is all equity firm the WACC is same as cost of equity. Raising $3billion debt for repurchase of stock or dividend would change the capital structure of the firm. The raised debt‚ because
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The Wm. Wrigley Jr. Company: capital structure‚ valuation‚ and cost of capital Teaching Note Synopsis In June 2002‚ a managing director of an active-investor hedge fund was considering the possible gains from increasing the debt capitalization of the Wm. Wrigley Jr. Company. Wrigley had been conservatively financed and at the date of the case‚ carried no debt. The tasks for the student are to: Estimate the potential change in value from relevering Wrigley using adjusted present value analysis
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market. All odds are in favor but let’s see how the company can cope with such a complex case. For starters the want to end the relationship with TaiSource but this can be a very big mistake‚ because TS knows all the details about every product of UST. In the near
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The company is considering a recapitalization where it will issue $1 million in debt and use the proceeds to repurchase stock. Investment bankers have estimated that if the company goes through with the recapitalization‚ it’s before-tax cost of debt will be 11%‚ and its cost of equity will rise to 14.5%. Assuming the company maintains the same payout ratio‚ what will be its stock price following the recapitalization? (Points: 8) After recapitalization: EBIT 1‚000‚000 Less Interest (1
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on distressed companies‚ merger arbitrage‚ change of control transactions‚ and recapitalizations. They are trying to buy a large stake in the company and thereby force the management to reorganize the capital structure by raising the debt and using it to pay the dividends or buy back the shares. As a part of evaluating they wanted to find if they are inefficiently financed or not. Under the proposed recapitalization‚ Wrigley would borrow $3 billion and use it either to pay equivalent dividends
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