Introduction

Victor Dubinski, CEO of Blaine Kitchenware, Inc. had recently been made aware that a group of private equity investors made inquiries about a possible acquisition of Blaine. Dubinski knew that the family had absolutely no interest in selling, but he was still perplexed about how the private equity group could unlock some inherent value within their company. They wanted to use the cash on Blaine’s balance sheet and new borrowings to purchase all of Blaine’s outstanding shares at a price higher than its current stock price. After some thinking, he began to think about how he could complete a repurchase decision himself and thus stave off an unsolicited takeover.

Blaine Kitchenware is a mid-sized producer of branded small appliances primarily used in residential kitchens. It was originally founded in 1927 as the Blaine Apparatus Company and produced then-novel electric home appliances. By the year 2006, Blaine had achieved a 10% share of the total $2.3 billion U.S. market for small kitchen appliances. Recently Blaine began expanding into foreign markets. A majority of their revenue was generated from shipments to U.S. wholesalers and retailers, but 35% of their sales came from Canada, Europe, Central, and South America.

By the end of 2006, Blaine’s balance sheet was the strongest in the industry. They were debt-free and held $231 million in cash and securities. More recently, the company’s largest uses of cash had been dividends paid out to their shareholders and cash paid towards new acquisitions. During 2004-2006, their dividends per share slightly rose. However, as the company issued new shares in relation with some of its acquirements the number of shares outstanding increased, which led to the dividends being paid out to rise to more than 50%. Despite the company’s overall profitability, shareholder return had been below average. Blaine’s