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 1992-99
Eskimo Pie Share Price
25
20
Price
15
10
5
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
Value of $100
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 Pie’s 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