William Wrigley Company Case Study

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1 Introduction The main issues in this case relates to a mature firm that does not use debt at all and is not taking advantage of the lowest interest rates in nearly 50 years. William Wrigley Jr. Company makes chewing gum, has a leading market share in their line of business, and yet has no debt. Blanka Dobrynin, a managing partner of Aurora Borealis LLC, wants to see if Wrigley Company can take advantage of and benefit from debt. 2 Problem Statement Wrigley does not have any debt issued and is not taking advantage of the lowest interest rates in the last 50 years. An outsider Blanka Dobrynin, managing partner of Aurora Borealis LLC, wants to know what would happen if Wrigley could borrow $3 billion at a credit rating between BB and B. 3…show more content…
They can either issue debt, or keep everything the same and have no debt. If they do not issue debt, nothing changes and they still hold their position as the world's largest manufacturer and distributor of chewing gum. However, one of the major advantages of issuing debt is that their income tax decreases since their interest expense increases. The main disadvantage for issuing debt is that Wrigley would have to repay the loan plus any interest. If Wrigley decided to issue debt, they could either pay dividends or repurchase shares. The main advantage of paying dividends is to keep the interest of the shareholders' in the company's stock. On the other hand, the advantage of buying back shares would be for the Wrigley family to hold more control over the company. Also, buying back shares reduces the balance sheets assets and total liabilities and stockholders' equity. 5 Recommendations I recommend that Wrigley does take the $3 billion of debt. Whether the $3 billion was used to pay dividends or repurchase shares, both have an effect on the market equity. Both paying dividends and repurchasing shares reduces Wrigley's equity. By doing so, this lowers the investment risk the company. Blanka Dobrynin should try to convince the directors to undertake capitalization. Borrowing the $3 billion would benefit Wrigley as it lowers the cost of capital, and reduces the investment

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