Eskimo Pie Case

January 19, 2006

J. K. Dietrich - FBE 532 Spring 2006

Basic Steps to
Valuation in Finance

Estimate cash flows

Cash - after tax, consumable
Sometimes easy (fixed incomes), sometimes hard
(residual claims)

Choose a discount rate

opportunity rate on alternative
risk adjusted

Calculate present value and net present value and

decide if worth more than costs

J. K. Dietrich - FBE 532 Spring 2006

Updated Estimates in Valuation

Eskimo Pie Profit/Cashflow '91
92
93
Sales
$61.0 $
64.9 $
65.7
Operating Expenses
41.4
44.7
45.2
SG&A
15.8
16.8
17.0
Op. Profit
$3.8
$3.5
$3.5
Free Cash Flow
$2.7
$2.5
$2.5
Net Income
$2.3
$2.1 $
2.1
Growth '90-91
29.2%
6.4%
1.2%
FCF + TV
$2.7
$2.5
$50.76
PV @ 15.5%
$37.2
Cash
$13.0
Total Value
$50.2

J. K. Dietrich - FBE 532 Spring 2006

Sensitivity to Operating Ratios

Eskimo Pie Profit/Cashflow '91
Sales
$61.0 $
Operating Expenses
34.3
SG&A
19.0
Op. Profit
$7.8
Free Cash Flow
$5.1
Net Income
$4.7
Growth '90-91
29.2%
FCF + TV
$5.1
PV @ 15.5%
$86.0
Cash
$13.0
Total Value
$99.0
J. K. Dietrich - FBE 532 Spring 2006

92
93
64.9 $
65.7
36.4
36.9
20.2
20.5
$8.2
$8.3
$5.3
$5.4
$4.9 $
5.0
6.4%
1.2%
$5.3
$119.61

Eskimo Pie Cost of Capital

Company
Equity Total Debt
Ben & Jerry's
110.1
2.8
Dreyer's Grand Ice Cream
534.0
44.3
Empire of Carolina, Inc.
51.4
89.8
Steve's Homemade Ice Cream
37.4
3.1
Hershey Foods Corp.
4002.5
282.9
Tootsie Roll Inds.
728.8
0.0
Average

E/TMV Equity Beta Asset Beta

0.98
1.2
1.17
0.92
1.4
1.29
0.36
0.3
0.11
0.92
2.5
2.31
0.93
1.0
0.93
1.00
1.0
1.00
0.85
1.23
1.14

Estimated WACC using short-term and long-term Treasuries:

WACC S Trf 4.56% 1.14 * 9.2% 15.0%

WACC L Trf 7.42% 1.14 * 7.4% 15.9%
J. K. Dietrich - FBE 532 Spring 2006

Valuations under Varying Rates

Growth =
Discount Rate
14%
15%
16%
17%

10%
$
$
$
$

121.0
96.8
80.7
69.1

12%
$
$
$
$

246.4
164.3
123.2
98.6

14%
-535.8
267.9
178.6

Assuming $4.4 million assumed in the case FCF ($4 + .4) grows
in perpetuity and omits $13 million in excess cash available for
payment to buyers
J. K. Dietrich - FBE 532 Spring 2006

Valuation Using Comparables

Company
Ben & Jerry's
Dreyer's Grand Ice Cream
Empire of Carolina, Inc.
Steve's Homemade Ice Cream
Hershey Foods Corp.
Tootsie Roll Inds.
Average

MV/BV
4.19
4.72
1.14
3.37
3.00
4.77
3.53
BV
21.80

Estimate for Eskimo Pie 1991

Valuation Using Comparables
Eskimo Pie 1991 Cash
Total Estimated Value
J. K. Dietrich - FBE 532 Spring 2006

$
$
$

77.0 $
13.0 $
90.0 $

PE
29.76
33.58
5.84
20.78
18.23
28.58
22.80
NI
2.3
52.4 $
13.0 $
65.4 $

MV/S
1.16
1.63
0.58
1.15
1.48
3.51
1.59
Sales
61

TV/CF
16.85
24.00
8.40
15.00
14.66
22.42
16.89
FCF
2.7

96.7 $
13.0 $
109.7 $

45.6
13.0
58.6

Eskimo Pie Share Price

Eskimo Pie Share Price 1992-99

25

20

P r ic e

15

10

0
31-Mar-92

13-Aug-93

26-Dec-94

9-May-96
Price

J. K. Dietrich - FBE 532 Spring 2006

21-Sep-97

3-Feb-99

Post-IPO Performance of Eskimo

V a lu e o f $ 1 0 0

Es k im o Pie and S&P 500

450
400
350
300
250
200
150
100
50
0
31-Mar-92 13-Aug-93

26-Dec-94

9-May-96

21-Sep-97

Tim e

EPIE
J. K. Dietrich - FBE 532 Spring 2006

S&P

3-Feb-99

End of the Eskimo Pie Story

Eskimo Pie Corporation
Operating Data DEC91 DEC92 DEC93 DEC94 DEC95 DEC96 DEC97 DEC98 DEC99
Sales (Net)
60.96 62.88 66.08 70.89 83.98 74.08 66.39 63.49 66.45
Cost of Goods
34.25 33.97 34.43 37.96 46.15 44.22 37.17 35.27 36.25
Net Income (Loss)
3.75
4.55
3.48
4.85
5.08
-2.05
0.11
0.8
0.84

On November 17, 1998, an unsolicited offer from Yogen Fruz

World-Wide Incorporated to acquire 100% of Eskimo Pie for
$10.25 per share was rejected by Eskimo Pies Board. Yogen
Fruz responded with a $13 conditional offer on December 2,
1998, and the Board requested its financial advisors to examine
the full range of strategies to enhance shareholder value (p.
13, 1998 Annual Report). On May 3, 2000, the company agreed
to be acquired by Cool Brands, Yogen Fruz successor, for
$10.25 per share. Shareholders accepted the offer on September
6.
J. K. Dietrich - FBE 532 Spring 2006