Blaine Kitchenware: Capital Structure
Blaine Kitchenware, Inc. was founded in 1927 and as a mid-sized producer of branded small appliances primarily used in residential kitchens.BKI had just under 10% of the $2.3 billion U.S. market for small kitchen appliances. For the period 2003–2006, the industry’s annual unit sales growth was 2%. During the year ended December 31, 2006, Blaine earned net income of $53.6 million on revenue of $342 million.Cause recent shift toward higher-end product lines, Blaine’s operating margins had decreased slightly over the last three years. Margins declined due to integration costs and inventory write-downs associated with recent acquisitions. During 2004–2006, compounded annual returns for BKI shareholders, including dividends and stock price appreciation, were approximately 11% per year. However, it was well below the 16% annual compounded return earned by shareholders of Blaine’s peer group during the same period.At the end of 2006, Blaine’s balance sheet was the strongest in the industry. BKI has a substantial liquidity. In 2007 Blaine still planned to continue its policy of holding prices firm in the face of competitive pressures. Because of BKI was over-liquid and under-levered, private equity buyer could purchase all of Blaine’s outstanding shares. So Victor Dubinski, CEO of BKI, face a stock repurchase decision in avoid of an unsolicited takeover. The company must determine the optimal debt capacity and capital structure, and subsequently estimate the resulting change in firm value and stock price. Main isuues:
Blaine Kitchenware, Inc is over liquid and under-levered. It means Bliane has large financial surpluses and play a bad financial leverage. The funds have not been fully utilized, even BKI faces that the private equity firm would purchase all of Blaine’s outstanding shares and takeover the BKI. This is the main issue which Victor Dubinski has to deal with. The problem:
In response to an unsolicited...
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