Topics: Corporate finance, Loan, Debt Pages: 40 (3755 words) Published: April 10, 2014
Harrington Corporation

Professor Kevin Rock


• The Harrington Corporation is the leading producer
of commercial desk calendars in the US at the time of
the case
– Founded by Joshua Harrington in 1920
– Headquartered in Boston
– Currently owned by Thaddeus Baring, a descendant of the

• Thaddeus Baring is contemplating retirement
– The stress and strain of the calendar business is taking a toll on his health
– “Every year another calendar: It’s relentless!”

• The prospect of Baring’s retirement is a source of
concern to the CFO, Paul Brooks
– Baring intends to divest the business and relinquish control – Baring is already soliciting offers in the $10M range and finding some interest among corporate buyers

• Notwithstanding Baring’s assurances that the current
management team would be protected in the event of
a change of control, Brooks is skeptical the new
owner would leave everything as is
– Two CFO’s?
• Twice the trouble and half the effectiveness of one CFO

• Brooks is not optimistic of duplicating his current
situation at another employer
– Current responsibilities include
• Shareholder reporting: one individual
• Capital budgeting: major capital expenditure program just completed
– Harrington facilities the most modern in the industry, excellently maintained

• Financial forecasting and planning: level production; 98% re-order rate for product
• Working capital management: pay cash for all orders when due • Debt issuance: two unutilized $1M lines of credit
• Equity issuance and dividend policy: as Owner decides

• Brooks is not optimistic …continued
– Brooks currently enjoys a compensation package of $45,000 per year plus 2.5% of pre-tax profits
• For a total of $80,000 in the most recent year, 1970
• Equivalent to $463,724 in 2011 dollars

– The prospect of an extended search and possible relocation does not appeal, particularly given Brooks’ employment
• Graduated from a leading school of business administration • Worked five years in the venture capital area of a large Boston bank • Started own management consulting firm before joining Harrington – Which means out of work for two years

– Had to step over the laundry basket every day on way to the “office” 5

• Having surveyed his opportunities, Brooks gathers the
management team together and proposes making a bid
– Team members include Kim Darby (marketing), Keith
Jackson (manufacturing), and Waldo Sloane (controller)
• Have a combined 90 years experience in the business

• Baring is amenable to a bid from management and
willing to delay further solicitations of interest
provided that
– Proposal received in six weeks
– Meets Baring’s price of $10M, $8M of which is in cash
• No more than $2M of seller financing

Economics of the Transaction
• The managers are unanimous that Baring’s retirement
presents a unique buying opportunity
• Among Harrington Corporation’s favorable attributes:
– High barriers to entry, due to economies of scale in production • To match Harrington’s costs, an entrant would have to match its investment in high speed printing presses, leading to overcapacity and a debilitating price war

– Virtually recession-proof product
• Desk calendars disproportionately favored by those who work at desks; i.e., in the service rather than manufacturing sector
– The service sector is historically less susceptible to economic downturns

• A desk calendar is an inexpensive but essential part of office routine, virtually immune from budget cutting

Economics of the Transaction
• Favorable attributes …continued
– High customer re-order rate (98%)
• Harrington desk calendars are competitively priced; company supplies its own stands
• Want to order another calendar? Better shop around hard and buy a stand yourself
– Plus, better do it in August when your Purchasing Department is...
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