Chandler Loupe
Oct. 13th, 2013
FIN 3717 Stephens
American Greetings- Executive Summary On a warm New Years day in Cleveland, American Greetings management was reviewing its stock’s recent downward trend of being cut in half over the past several months. When faced with situations of low equity valuation, AG’s management team normally opted to buyback; and given the circumstances, they were considering a $75 million repurchase program. As the second largest greeting card publisher, they positioned themselves as a leader in social expression products through a number of new business facets such as: electronically selling greetings, owning a number of different brands aside from AG, and licensing popular characters they owned the rights to.
Problem
The biggest issue facing the company was the overall decline in the greeting card industry. Industry analysts had concluded that their market had contracted by 9% since 2005, and that the trend would continue. The Mintel industry analyst firm had a best-case scenario of a 4% decline over the next four years, and a worst-case scenario of 16%.
Analysis
Although their market appears to be at a steady decline, their 2011 fiscal year shows a few signs of improvement. As seen in Exhibit 2, their international social expression products net sales increased by 31%, greeting cards by 9%, and gift packaging by 7%. Aside from small gains in revenue, their weighted average cost of capital has been fairly steady the past 3 years. By using the 10-year corporate bond rate (5.8%) for a BB+ company, for the cost of debt, and a cost of equity of 11.94%, the WACC for 2009-2011 is 8.35%, 8.80%, and 8.81% respectively.

Recommendation I would recommend that AG’s management reinvest the $75 million in other areas of their company/enterprise instead of repurchasing shares. With the current decline in the market for greeting cards,