The Wm. Wrigley Company
P.O. BOX 3900.
Peoria, IL 61614
Dear Mr. Radvan:
I am writing this letter in regards to the recent research for a potential investment in Wrigley constructed by our associate Susan Chandler. Chandler was approached by Blanka Dobrynin, a managing partner of Aurora Borealis LLC, who assumes that we can borrow $3 billion at a credit rating between BB and B, to a yield of 13%. Under the proposal, the $3 billion would be used to either pay dividends or repurchase shares. This past week Chandler presented the financial department with a complete analysis, which analyzed many different effects of issuing $3 billion of debt.
After closely looking over Chandler’s analysis I do think that it would be beneficial for our company to take on the $3 billion of debt and repurchase shares. If we recapitalize with the $3 billion, Wrigley’s voting control will increase by 4.01%, which gives the company more control and reduces the chance of a takeover-taking place. The earnings per share will be greater for the repurchase versus the dividend payment. An increase in EPS will increase our profits. In addition to the increase in voting control and a greater EPS for the repurchase, debt financing raises the value and lowers WACC for Wrigley. By taking on this debt the market value of Wrigley will increase by the amount of the tax shield from the debt because the stock price will increase to $61.53.
A BB/B rating is not likely for our company. I think AAA/B rating is more appropriate, yielding at