1.

The Eskimo Pie was a huge success for the company throughout the history. But this
success has been in terms of sales only and not in the terms of revenue. In the year
1923, there was a sale of a billion Eskimo Pies but the company was unable to pay
its loan of 100,000. So, due to this reason, the Board of Directors of Raymonds
decided to put up Eskimo Pie for sale.
But the President of Eskimo Pie was reluctant to work under Nestle for the following
reasons

Independence It is clearly written in the case that Mr. Clark feared that if
Nestle took over the company, Eskimo Pie will lose its independence it has
enjoyed since the beginning. There will be less control by the current
managers on the workings of the company.
Consolidation If the buyout is successful, Nestle plans to consolidate Eskimo
Pie with its frozen product department. This will make Eskimo Pie loose its
independent identity.
Unemployment It is also mentioned in the case that if the acquisition is
successful the current employees, who have worked there for a long time,
might not retain their positions in the company.
Wheat First Security Prediction The managers at Eskimo Pie wanted to buy
out the company rather than seeing it acquired by Nestle so they Offered to
go for IPO which they thought will fetch more money than what was offered
by Nestle.

2.

Economics of Scale - The Frozen Novelty Segment started to mature during

the early 1980s. Industry revenues went from $590 million in 1980 to $1.5
billion by 1987. The number of ice cream novelty brands, 100 in 1980,
expanded to over 500 by 1987. As we can see from the table B given in the
case, Eskimo Pie held the third position in the market of Frozen Novelties.
Nestle was not the market leader in that sector. So, acquiring one of the
market leaders will drastically improve Nestls market shares and revenue
and sales. Since the sales will increase as well as production for Nestle, there
will be economics of scale as the cost of production will be spread out evenly.
Synergy - When Nestle will acquire the company, with it they will also be able
to access the supply chain of Eskimo pie. They will also be able to access the
expertise of production from Eskimo Pie. On the other hand, the analysis of
Wheat First shows that there will be no synergy if Eskimo Pie is acquired by
Nestle. The reason given is that there is a high probability of making more
money if Eskimo Pie goes for IPO than selling it to Nestle. Wheat First was
able to predict this because it was working with updated information as it can
be seen in exhibit 5 and 6. It also forecasted that sales in 1991 were
projected at about $57 million; actual sales would be about $61 million.
Capital expenditures were expected to be less than $1 million in 1992.
(Exhibit 7)

3.
The debt - ratio is the leverage ratio that determines total amount of debt in relation
to assets.
From exhibition 1 we can see that at the end of 1990 total asset was 29518 and
debt was worth 744. So, it can be said that the debt ratio was 0.02
But, if the company went for IPO it will increase stockholder equity thus, decreasing
debt. So the debt ratio will decrease.