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    Case: Blaine Kitchenware, Inc

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    William Ng
    The case involves Blaine Kitchenware, a family-owned company facing challenges from foreign competition, recession, and technological innovations. A private equity group is interested in acquiring Blaine and using its cash reserves to take on debt and repurchase shares. The proposal would borrow $50 million at 6.75% interest and use the funds plus $209 million in cash to repurchase 14 million shares at $18.50 per share. As CEO, you must evaluate this proposal and its impacts on leverage, liquidity, return on equity, earnings per share, taxes, value, risk, and ownership structure. You are to prepare an 8-10 page memo analyzing the proposal and providing your own financial recommendation.

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    Case: Blaine Kitchenware, Inc

    Uploaded by

    William Ng
    141 views5 pages
    The case involves Blaine Kitchenware, a family-owned company facing challenges from foreign competition, recession, and technological innovations. A private equity group is interested in acquiring Blaine and using its cash reserves to take on debt and repurchase shares. The proposal would borrow $50 million at 6.75% interest and use the funds plus $209 million in cash to repurchase 14 million shares at $18.50 per share. As CEO, you must evaluate this proposal and its impacts on leverage, liquidity, return on equity, earnings per share, taxes, value, risk, and ownership structure. You are to prepare an 8-10 page memo analyzing the proposal and providing your own financial recommendation.

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    Blaine case

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    Blaine case

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    The case involves Blaine Kitchenware, a family-owned company facing challenges from foreign competition, recession, and technological innovations. A private equity group is interested in acquiring Blaine and using its cash reserves to take on debt and repurchase shares. The proposal would borrow $50 million at 6.75% interest and use the funds plus $209 million in cash to repurchase 14 million shares at $18.50 per share. As CEO, you must evaluate this proposal and its impacts on leverage, liquidity, return on equity, earnings per share, taxes, value, risk, and ownership structure. You are to prepare an 8-10 page memo analyzing the proposal and providing your own financial recommendation.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    141 views5 pages

    Case: Blaine Kitchenware, Inc

    Uploaded by

    William Ng
    The case involves Blaine Kitchenware, a family-owned company facing challenges from foreign competition, recession, and technological innovations. A private equity group is interested in acquiring Blaine and using its cash reserves to take on debt and repurchase shares. The proposal would borrow $50 million at 6.75% interest and use the funds plus $209 million in cash to repurchase 14 million shares at $18.50 per share. As CEO, you must evaluate this proposal and its impacts on leverage, liquidity, return on equity, earnings per share, taxes, value, risk, and ownership structure. You are to prepare an 8-10 page memo analyzing the proposal and providing your own financial recommendation.

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    You are on page 1of 5

    Case: Blaine Kitchenware, Inc.

    Why this case?


    The case captures a very real problem in a number of
    public firms in the U.S.:
    Old, family-controlled firm facing challenges from the economic
    environment (foreign competition, recession, tech innovations)
    Ultra-conservative financial policies (no debt, large cash stocks)
    Corporate governance issues (family-centric firm culture)
    Likely target of PE groups

    The firm is facing a financial dilemma that may have


    multiple real-side implications
    A PE group is interested in using the firms liquid balance
    sheet to raise debt, then use the money to buy back stocks
    The case allows us to consider Modigliani-Miller, optimal
    capital structure, governance issues, the dynamics of LBOs

    Your job
    Youre Mr. Victor Dubinsky, CEO at Blaine, Inc.
    Its April 2007 and you have to consider whether to sell the
    firm? Do a LBO? Do nothing?
    To make the analysis consistent, consider a specific proposal:
    1. Borrow $50 million at the cost of 6.75%
    2. Add the loan to $209 million cash & mkt secs in Blaines B-S
    3. Then repurchase 14 million shares at $18.50/share

    Discuss the proposals effects on, among other things, Blaines


    leverage, liquidity, ROE, EPS, taxes, value, risk, ownership
    You should also add your own financial proposal
    Key point: Discuss the adequacy of any proposed repo price
    The rationale and details of your proposals must be given
    in a 8-10 page memo by a group of 3-5 students
    Deliver a hardcopy in the class session when case is due
    Note: Assume the corporate tax rate stays constant at 30.8%

    Your job
    Describe mechanics of recap plan using 2006 book figures
    (US $000)

    Original

    Cash & Mkt Secs


    NWC
    PP&E
    Other (net)
    Total

    230,866
    32,231
    174,321
    50,945
    488,363

    Debt
    Equity
    Total

    0
    488,363
    $488,363

    Post-Repo

    Your job
    Describe impact of recap plan on income statements
    (US $000)

    Original

    EBIT
    + Interest income
    Interest expense
    EBT
    Taxes (30.8%)
    Net income

    63,946
    13,506
    0
    77,451
    23,821
    53,630

    Shares
    EPS
    ROE
    Taxes paid

    59M
    0.91
    11%
    23,821

    Post-Repo

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