The Wm. Wrigley Jr. Company : Capital Structure, Valuation, and Cost of CapitalFlorensia Restian Dwi A-1406589972Nina Marlina-1406590173Sih Widhi Utami-1406590293Yulia Nurlita-1406515500

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Lahir di Philadelphia pada1862.Pada 1891, mendirikan Wm. Wrigley Jr. Company.Pada 1893, William Wrigley Jr. Memperkenalkan permen karet baru yaitu Juicy Fruit.Pada 1915, William Wrigley Jr. Mengeimplementasikan first-ever national direct-marketing campaign at home

Merupakan produsen dan distributor permen karet terbesar di dunia.Industri yang kompetitif dan didominasi beberapa perusahaan besar.Pada akhir 2001 memiliki total asset $1,76 M dan tidak ada Hutang.Harga saham Wrigley's telah secara signifikan mengungguli komposisi indeks S & P 500

Aurora Borealis adalah investor aktif dalam hedge fund dengan strategi investasi yang difokuskan pada perusahaan-perusahaan yang bermasalah, penggabungan arbitrase, perubahan transaksi kontrol, dan rekapitalisasi.Blanka Dobrynin, managing partner Aurora Borealis LLC meminta Susan Chandler, untuk memulai penelitian potensi investasi Wrigley.

Fakta-fakta :Market share of common equity : $13,1 M Yield : 13%Asumsi : Wrigley meminjam $3 M dengan credit rating antara BB dan B.Revenue growth rate : 10%Earning growth rate : 9%Total Asset : $1,76 MMarginal Tax Rate : 40%Pre-tax Cost of Debt : 13%Market Risk Premium : 7%Wrigley Family Ownership : 21% Common Stock & 58% Class B Common StockOutstanding Shares : 232.441 juta

Question 1 :In the abstract, what does Dobrynin hope to accomplish with her active-investor strategy?"Investor aktif" di mana perusahaan mengidentifikasi perusahaan yang dapat memperoleh manfaat dari restrukturisasi dan kemudian berinvestasi dalam saham perusahaan. Jika Wrigley mengubah struktur modal perusahaan dengan meningkatkan rasio utang ekuitas, nilai keuangan menjadi signifikan sebagai akibat atas penggunaan pajak (value added by debt tax shelter benefit).Strategi ini menciptakan $156 juta tambahan pendapatan pemegang saham. Nilai arus kas tambahan ditampilkan sebagai nilai sekarang dari perpetuity $1,2 milyar.

Debt : $3.000.000.000

Question 2 :What is the nature of Wrigleys business? Is this a healthy, growing company? What would a major recapitalization of Wrigley signal to investors?Wrigley company merupakan perusahaan yang bertumbuh, hal ini dapat dilihat dari:Harga saham yang terus meningkat dari grafik pada exhibit 4 mengenai stock price performance. Pertumbuhan aset setiap tahun, serta peningkatan EPS rata-rata 6% per tahun (exhibit 2)Rasio Keuangan :Current Ratio : 2.75 (913.843/332.234) pada tahun 2001Quick Ratio : 1.91 pada tahun 2001Cash Ratio : 92%ROA : 2%ROE : 2,8%Profit Margin Ratio : 1,5%EPS : peningkatan 6%P/E Ratio : 35

Question 3 :What will be the effect of issuing $3 billion in new debt and using the proceeds to pay a dividend or to repurchase shares on:Wrigley Market Value per Share Post recapitalization = prerecapitalization + PV Debt equity value eq value tax shield

$ 61,53 = $ 56,37 + (40% x $ 3.000 / 232,44)$ 61,53 = $ 56,37 + 5,16

Question 3 :What will be the effect of issuing $3 billion in new debt and using the proceeds to pay a dividend or to repurchase shares on:b. Wrigleys number of outstanding shares C/S outstanding = 232,44 juta saham After recapitalization (re-purchase), maka o/s share = 232,44 juta share ($ 3 milyar / $ 61,53) = 232,44 juta share 48,765.704 share = 183,683.296 shares

Question 3 :What will be the effect of issuing $3 billion in new debt and using the proceeds to pay a dividend or to repurchase shares on:c. Wrigleys Book Value and Market Value of EquityBook value equity-unlevered adalah:= stakeholder equity/ number of outstanding share= 1,276,287 / 232,440= 5,49Book value equity sebesar $ 5,49 memiliki varian cukup tinggi dibandingkan dengan market price yaitu $ 56,37. Hal ini dikarenakan nilai buku mencerminkan nilai historis dan tidak mempertimbangkan faktor faktor yang lain seperti value of brands, intellectual property, customer franchise, dan the debt tax shields.Selanjutnya book value equity-levered akan menjadi negatif karena pembayaran dividen ataupun pembelian kembali saham.

Question 3 :What will be the effect of issuing $3 billion in new debt and using the proceeds to pay a dividend or to repurchase shares on:c. Wrigleys Book Value and Market Value of EquityMarket Value of Equity

Question 4 :What are the relative merits of the dividend or share repurchase ?

Ketika Wrigley membeli sebagian saham beredarnya, maka terdapat kenaikan manfaat relatif terhadap dividen. Jika dilihat dari rumus EPS, semakin kecil saham beredar maka EPS akan semakin besar, dan diharapkan pembagian dividen pada masing-masing pemegang saham akan meningkat.

Question 5 :Would book value and market value weights change as a result of the recapitalization?Seperti yang sudah dibahas pada question 3. Book value akan menjadi negatif sebagai akibat atas repurchase stock. Hal ini juga menurunkan market value of equity.

Question 6 :What is Wrigleys WACC before the repurchase?Wrigleys capital structure is 100% equity w/o Debt (unlevered)WACC dengan Metode Capital Asset Pricing (CAPM) sebelum re-purchase :WACC = Rs = Rfr + (Rpremium x Beta) = 5,65% + (7% x 0,75) = 10,90%

Question 7 :What will be the new WACC if the repurchase is undertaken?Setelah repurchase, peningkatan leverage berdampak pada WACC melalui:a. Debt RatingJika sebelumnya Wrigley berada pada rating AAA, maka setelah memiliki debt $ 3 milyar, maka rating akan berubah menjadi BB atau B.

UnleverdLeveredEBIT Interest Coverage = EBIT / Debt Interest-= $513.356 / $390.000= 1,316

Question 7 :What will be the new WACC if the repurchase is undertaken?b. Beta SahamBeta saham merupakan pengukuran spesifik risk pada spesifik industri. Secara teori maupun praktek di lapangan, perubahan beta dipengaruhi oleh financial leverage. = u [ 1+(1-T)(D/S)] = 0,75 [ 1+(1-40 %)(3.000 million share / ($ 61,53 x 183,68 million share) ] = 0,87Perubahan beta tidak terlalu signifikan, dikarenakan oleh market value of equity Wrigley sangat besar yaitu $ 13,103 milyar, sehingga penambahan debt $ 3 milyar relatif kecil untuk mengubah rasio debt to equity.WACC setelah repurchase;rs = rRF + (RPM) rs = 5,65 % + (7 %) 0,87rs = 11,7 % Cost of equity meningkat 80 point dari 10.9% menjadi 11.7%. Hal ini memperlihatkan debt tax shield yang lebih tinggi.

Question 7 :What will be the new WACC if the repurchase is undertaken?c. Capital weight based on the market value of equity and the book value of debtDengan asumsi struktur modal 80% equity dan 20% debt, maka WACC setelah rekapitulasi:WACC = wd ( 1 T ) rd + we rsWACC = 20 % ( 1 40 % ) 13 % + 80 % . 11,7 % WACCL = 10,92 %WACC sebelum dan sesudah rekapitulasi tidak memiliki perbedaan yang signifikan, hal ini disebabkan karena tax benefit dari penggunaan debt, ter_offset dengan peningkatan cost of equity.

Question 8 :Is there anything missing from the WACC estimates? Is the reduction in WACC a sufficient motive for the recapitalization?Dengan penggunaan debt, Wrigley menjadi lebih berisiko. Estimasi WACC tidak memperlihatkan risiko tersebut. WACC sebelum dan sesudah rekapitulasi tidak memiliki perbedaan yang signifikan, hal ini disebabkan karena tax benefit dari penggunaan debt, ter-offset dengan peningkatan cost of equity, estimasi levered setelah rekapitulasi tidak mampu merepresentasikan cost of financial distresses.

Question 9 :What will be the effect on earnings per share (EPS) of issuing $3 billion of new debt and using the proceeds to repurchase shares or pay a dividend?Dengan menggunakan debt, net income menjadi turun sebesar 80%, akibatnya;D1 = $ 0,745 (1-0,8) = $ 0,15Atas penggunaan debt, EPS menurun dari $ 1.6 menjadi $ 0.4 dengan repurchase atau $ 0.15 dengan deviden. Penurunan EPS disebabkan oleh peningkatan interest dan berkurangnya jumlah saham beredar.

Question 10 :Should Blanka Dobrynin pursue the recapitalization proposal with Wrigleys directors?Pertimbangan rekapitulasi yaitu: Interest tax shield generated by leveraging Menaikkan nilai perusahaan sebesar $1,2 M. (capital appreciation)Kebangkrutan Revenue stabil Resiko bisnis rendah Kebangkrutan kecilDampak pada rasio keuangan, risiko dan kepemilikan perusahaan. Peningkatan solvabilitas yang tidak konsisten dengan budaya manajemen Wrigley.

Menurut kami, sebaiknya Dobryin menyarankan untuk melakukan rekapitalisasi karena mampu meningkatkan nilai perusahaan, dan jika memilih untuk melakukan repurchase stock maka akan meningkatkan voter-control.

* 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

** 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

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