...Blaine Kitchenware Inc. Case Analysis: Muhamad Fahad Sohail Table of Contents Blaine Kitchenware capital structure and payout policy 2 Advantages and Disadvantages of share repurchase move 2 New proposal by CEO TO repurchase stocks from the market and its analysis 3 Recommendation to the CEO as a family member and as an independent consultant 3 How does the proposal differ from paying a special dividend of $4.39 share instead? 4 Blaine Kitchenware capital structure and payout policy Blaine Kitchenware Inc.’s current capital structure is not efficient. The incentive for any public company and Board of Directors should be the increase the value of firm through projects, increased earnings per share value, and the lowering of costs. One way many firm’s effectively increase the value of the firm is to minimize the weighted average cost of capital. The weighted average cost of capital is the costs of a firm in the form of debt and equity. Since Blaine Kitchenware is a public company and issues shares, they have an established capital structure model. By taking on no debt, the value of the firm is unlevered and the firm does not gain the advantage of the interest tax shield. It is because Blaine Kitchenware Inc. has chosen to finance projects by the selling of shares and has not made use of debt issuance that the firm’s value is not fully maximized and the weighted average cost of capital is not minimized. If Blaine Kitchenware Inc. took on debt, the value of the...
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...4040 OCTOBER 08, 2009 TIMOTHY LUEHRMAN JOEL HEILPRIN Blaine Kitchenware, Inc.: Capital Structure On April 27, 2007, Victor Dubinski, CEO of Blaine Kitchenware, Inc. (BKI), sat in his office reflecting on a meeting he had had with an investment banker earlier in the week. The banker, whom Dubinski had known for years, asked for the meeting after a group of private equity investors made discreet inquiries about a possible acquisition of Blaine. Although Blaine was a public company, a majority of its shares were controlled by family members descended from the firm’s founders together with various family trusts. Family interests were strongly represented on the board of directors as well. Dubinski knew the family had no current interest in selling—on the contrary, Blaine was interested in acquiring other companies in the kitchen appliances space—so this overture, like a few others before it, would be politely rebuffed. Nevertheless, Dubinski was struck by the banker’s assertion that a private equity buyer could “unlock” value inherent in Blaine’s strong operations and balance sheet. Using cash on Blaine’s balance sheet and new borrowings, a private equity firm could purchase all of Blaine’s outstanding shares at a price higher than $16.25 per share, its current stock price. It would then repay the debt over time using the company’s future earnings. When the banker pointed out that BKI itself could do the same thing—borrow money to buy back its own shares—Dubinski had asked...
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...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...
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...Blaine Kitchenware Case Study Blaine Kitchenware has occupied the industry for over 80 years and continues to gain control in the market it occupies. As the CEO of the company, Mr. Dubinski is faced with the difficult decision of determining what is best for the family company. The following questions will address what decision is the optimal and why it is beneficial for BKI. Ans. 1) The main dilemma in the case is whether Blaine Kitchenware’s should choose to repurchase its own shares or not. If Blaine’s Kitchenware does repurchase its shares, they must consider whether to partially repurchase the market float or go for a complete buyback where Blaine’s family would become the owner of all the remaining shares. They also have to consider of the effect of the repurchase on various factors like the risks involved in raising a debt especially when they are large, very conservative and debt free. They should also consider things such their acquisition plans, their earnings per share and their dividend per share, ownership structure, capital structure and of course the reputation of the company in the market after the buyback. With this in mind we can consider a few situations and then decide what Blaine should do, keeping in mind the perspective of both the existing shareholders' as well as Blaine's family’s. Since no debt is being raised, if all the cash & cash securities plus the market securities are used for the buy-back, his family may like this option. Their management...
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...Blaines Kitchenware Blaine kitchenware has occupied the industry for a over 80 years and continues to gain control in the market it occupies. As the CEO of the company, Mr. Dubinski is faced with the difficult decision of determining what is the best for the family company. The following questions will address what decision is the optimal and why it is beneficial for BKI. * Do you believe Blaine’s current capital structure and payout policies are appropriate? Why or why not? The main dilemma in the case is whether Blaine Kitchenware’s should choose to repurchase its own shares or not. If Blaine’s Kitchenware does repurchase its shares, they must consider whether to partially repurchase the market float or go for a complete buyback where Blaine’s family would become the owner of all the remaining shares. They also have to consider of the effect of the repurchase on various factors like the risks involved in raising a debt especially when they are large, very conservative and debt free. They should also consider things such their acquisition plans, their earnings per share and their dividend per share, ownership structure, capital structure and of course the reputation of the company in the market after the buyback. With this in mind we can consider a few situations and then decide what Blaine should do, keeping in mind the perspective of both the existing shareholders' as well as Blaine's c family’s. Since no debt is being raised, if all the cash & cash securities...
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...TO: VICTOR DUBINSKI FROM: CLAUDIA ZHAO SUBJECT: REVIEW OF BLAINE KITCHENWARE DATE: February 9, 2016 Based on the analysis of Blaine Kitchenware’s capital structure, I recommend share repurchase. Stock repurchase would result in a change in firm value and stock price for Blaine Kitchenware, and it will also contribute to optimal debt capacity through allowing the firm to utilize tax deductible financing. Blaine currently faces many risks as a result of the surplus cash including takeover threat and inappropriate payout structure. Blaine Kitchenware’s current capital structure and payout policies are inappropriate for the following reasons. Blaine is currently over-liquid and under-levered and the shareholders are not maximizing their values as a result. Blaine is entirely financed by equity and none by debt, so there is no cash shield. The surplus of cash lowers the return on equity and increases the cost of capital. The large amount of cash will also make Blaine a target for acquisition, due to its lower enterprise value. The payout policies of Blaine is also unsustainable without share repurchases. Blaine’s earnings per share decreased from $1.29 to $0.91 from 2004 to 2006. However, the payout ratio had risen from 35 percent to 52.9 percent in the same time. In order for Blaine to maintain its current payout policies, numbers of outstanding shares must be reduced through share repurchasing. I recommend acquiring leverage and repurchasing shares. Advantages include...
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...Blaine Kitchenware Inc. Take-Home Case Assignment BSAD 342 Prof. Vishwakarma Grady McQuillan Joe Mackay Mitch Chown Alessandro Galeone Discussion questions • Do you believe Blaine’s current capital structure and payout policies are appropriate? Why or why not? The current capital structure and payout policies for Blaine’s Kitchenware Inc in our opinion is not the most appropriate. The firm’s structure is invested primarily in equity, for the most part (other than twice in their history) not incurring any debt. Although the company originally seemed to pride itself in not incurring debt it’s evident that it has long-term affects on the value of the firm. Whether they considered that less debt would provide them with less risk or not, the fact is that they are not maximizing the value of their firm completely by staying away from debt financing. Although risk will increase when their debt increases, debt financing will lower the cost of capital primarily due to tax reduction. The firm will never reach their full potential by acting this conservative with their financing, and in return this affects their shareholders and payout policies. As stated in the case, “Despite the company’s profitability, returns to shareholders had been somewhat below average”. This is due directly to their net income and the amount of book equity. Subsequently, Blaine’s ROE in 2006 was extremely lower than that of its peers. This creates a big...
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...Heath Ceramics Heath Ceramics is one of the most renowned brands in the pottery industry. If you are looking for a place from where you can buy all types of decorating tools, Heath Ceramics is the perfect choice for you. The variation in the products is the most amazing part of their business. You are going to get a full overview on Heath ceramics here. At first, we will discuss the golden founding history of Heath Ceramics. Then an introduction to the products of them. Heath Ceramics is a California-based company. As you know from the introduction that it manufactures handmade kitchenware and stoneware. The first step of building Heath Ceramics was taken in 1948 by Edith Heath. She was fond of making glazy pottery with outstanding designs. Her husband helped her a lot in this profitable business. In the year 2003, an entrepreneur named Robin Petravic bought the company. Since then, the growth of Heath Ceramics has been an upward sloping line. The company makes a lot of products. Let’s see them one by one. Stoneware and porcelain: Stoneware products are mostly used for dining table and cooking purpose. The longevity and eye-catching design is exceptional from the other products. You can visit Heath Ceramics website for buying non-sticky fry pan or dinner set. The success in stoneware for the...
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...Ahmad Mohammad Analysis of Blaine Kitchenware Inc. case Brief Background Blaine Kitchenware Inc., a mid-sized producer of branded small appliances primarily used in residential kitchens, has a very conservative practices regarding taking debt. It only took debt twice in its entire history. An investment banker prompted the idea of repurchasing some of the company’s stocks to the CEO Mr. Dubinki. The CEO is not sure whether the repurchase will benefit the company or not. Problems with Blain current capital structure The main problems that I have noticed in Blain’s capital structure are * Heavy reliance on equity. * Zero debt * Surplus of cash Even though there are not problems at all with the company’s profitability, those problems above does not allow the company to operate at the maximum efficiency. Zero debt does not allow the company to benefit from tax shield. The firm is has extremely conservative practices regarding financing and they have only took debt twice in its entire history. On the other hand, heavy reliance on equity reduces the ROE, making it significantly lower that those of other competitors. Regarding the payouts, the dividend payout ratio had a dramatic increase from 35% in 2004 to 52.9% in 2006, which raises questions about the sustainability of cash growth. At the same time the Earning Per Share ratio (EPS) from 1.29 to 0.91. this is because there is a huge amount of shares available compared to the company’s net income. Actually...
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...8 5.0 QUESTION 4 9 6.0 CONCLUSION 10 7.0 REFERENCE 11 8.0 INDIVIDUAL CONTRIBUTIONS 12 2 Executive Summary Shopping Limited is family-owned and managed, traditional department store situated in a city in the North of England. The store has four retailing departments which is Furnishing, Kitchenware, Menswear, Toy and Restaurant. Each department is managed by a departmental manager and recently Samantha was appointed to the post of departmental manager of the Toy Department, Albert is the departmental manager of Menswear, Joseph is the departmental manager of Kitchenware, Arthur is the departmental manager of Furnishings and Claude is the departmental manager of Restaurant. Albert may be Samantha’s great uncle, who used to be a Sergeant in the Police Force but they often argue because they seldom agree with each other’s opinions. On the other hand, Claude have an explosive temper and has been known to lash out at his two assistant – Tracy and Paul. He sets very high standards for the restaurant. The menu offered by the restaurant may be extensive and creative, but it generally fell within the company that the price charged sometimes barely cover the food cost. He also revises menus weekly and order food supplies on a daily basis. In the Restaurant there...
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...China I. Ikea strategy in China II. Comparison Supor, ASD and Ikea (regarding to cookware) Sources I. Ikea in China IKEA has been in the Chinese market for more than 10 years. Ikea is used to be perceived as having low prices, this also one of the competitive cornerstones of the whole concept of Ikea. But this is not the case in China: here the perception is a fairly exclusive western retailer, a store for the higher middle class. The company realized this and started targeting the young middle class population, which are between 25 and 35 who have relatively higher incomes than the average and a higher education than the average. They are often more open to a Westernized lifestyle, and in most instances. Targeting this segment helped IKEA project itself as an inspirational western brand. This was a huge change in strategy, as IKEA was targeting the mass market in other parts of the world. Chinese see Ikea products as innovative and not traditional. Square tables are for example not traditional (round tables are tradition) and many of the colours used are not traditional to the Chinese. The Chinese Ikea stores have a special set of tea cups for the Chinese New Year. Also...
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...drinking, laughing with and befriending high ranking Nazi Officers. The Nazis brought new opportunities for profit and Schindler makes sure to cultivate the right contacts to assure that he will secure his share. In 1939 Hitler invaded Poland. In real life, within a week of the invasion, Schindler moved to Krakow to find a way to benefit from the Nazis occupation. During this time he met Itzhak Stern. With money he borrowed from aquaintences of Stern’s, Schindler purchased a kitchenware factory and opened it in 1940 He hired Stern as his accountant and used Jews from Kracow ghetto as his work force. During this time Shindler had cultivated friendships with Officers in both the German Army and the SS. Through these friendships and with a few bribes, Schindler was able to secure numerous army contracts for pots and pans manufactured in his newly opened kitchenware factory. The persecution of Jews began immediately after the German Occupation. The Germans took over Jewish properties and seized companies, houses and valuables. The Jewish living quarter, know as the Krakow Ghetto was created on March 3, 1941 and 20,000 Jews were forced to live there in an area meant to house 3000. The movie Shindler’s List mentions the harshness and over crowding conditions of Krakow Ghetto. In one scene a once rich couple enter a room in which they are assigned to live. It is only one room but they comment that it could be much worse. Within minutes twenty additional people have enter...
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...Introduction Ingvar Kamprad's rags to riches story starting from humble beginnings is an inspiration for all. Driven by core values of simplicity, an indomitable will to translate challenges consistently into opportunities, and an incredible 5:30 AM to midnight work ethic, Ingvar Kamprad built an enduring furniture company and served worldwide customers. IKEA's entry into US gives us an opportunity to understand the differences between Scandinavian and American customers, and examine the growth strategy. At age 17, Ingvar Kamprad founded IKEA with money (a gift) from his dad for successfully completing his studies. In 1951, he published his first catalog. Two years later, he opened a showroom in Almhuit and soon thereafter began designing his own furniture. In 1956, IKEA started testing flat packages. They designed products that could be packaged flat, which greatly reduced company and customer costs. IKEA opened their first store in Almuit in 1958, followed by another in Stockholm in 1965. Between 1965 and 1973, they opened seven new stores in Scandanavia, capturing 15% of the Swedish market. Business was going great, and it was time to expand. In fact, Kamprad said, "It is our duty to expand," dismissing those who insisted that furniture retailing was a strictly local business (Ingvar Kamprad and IKEA, 1996). Moving full steam ahead, Kamprad purchased a faltering IKEA franchise in Canada in 1979. Within 3 years, the canadian store was a lucrative business, and the management...
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...in the shoes of George Cloutier, moments after being asked by Richard Auhll to join the Circon board. Would you agree to be on | |the board? What role would you wish to play? Is your role consistent with your “duty of care” as a member of the board? | |Did Circon’s poison pill represent a strong or weak barrier to a hostile takeover? Specifically, if a hostile bidder had “broken through” (or| |triggered) the poison pill, what precisely would have happened to Circon’s capital structure and the hostile bidder’s stake in the company? | |(To answer this question see especially Footnote 1 on pages 4 and 5 and Exhibit 2 of the case.) | |Put yourself in the shoes of Charles Elson immediately after getting elected to the Circon board. How do you assess your situation? What are| |your options? How do you achieve change within the board and/or within the company? | |At the board meeting at the end of the case, what options were available to the board? Which appears to have...
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...enhanced outcome in finding resources. Also, en economist must recognize how restriction of resources plays a major role in any economy. If we tie this to the equipment industry, such as commercial stainless steel, we use production of commercial kitchenware is a whole new era of production. A product that may be interconnected in making a second product, like the stainless steel on a sub-zero refrigerator, can be made to aid a second product or industry. Stainless steel, being one of the richest resources, can be used anytime and anywhere and also be used in the equipment industry as a finished good. We know that Scrap metal lots pay top dollar for stainless steel products. A majority of restaurant equipment manufacturers only supply stainless steel equipment, and let’s suppose the restaurant closes down. A lot of people assume that the finished good of stainless steel machine operations would go to waste when it breaks, but the truth is that the equipment is either bought back from an equipment dealer or cashed for its value. Recently, one of the most credible refrigeration manufacturers, Maple Leaf equipment, had recently recalled their deli slicing machines. NSF, or national safety foundation, has set laws and regulations on kitchenware equipment and has recalled and heavily fined any commercial equipment dealer selling stainless steel equipment to restaurants or dealers. It sets code standards for any piece of equipment that goes in or...
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