Blaines-Kitchenware哈佛案例-非答案-Harvard-Case-#-4040

DoNotCopyorPostThisdocumentisauthorizedforuseonlybyZhangZhouuntilJan[e-mail]617.783.7860.________________________________________________________________________________________________________________HBSProfessorTimothyA.LuehrmanandIllinoisInstituteofTechnologyAdjunctFinanceProfessorJoelL.Heilprinpreparedthiscasesolelyasabasisforclassdiscussionandnotasanendorsement,asourceofprimarydata,oranillustrationofeffectiveorineffectivemanagement.Thiscase,thoughbasedonrealevents,isfictionalized,andanyresemblancetoactualpersonsorentitiesiscoincidental.Thereareoccasionalreferencestoactualcompaniesinthenarration.Copyright©2009HarvardBusinessSchoolPublishing.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685,writeHarvardBusinessPublishing,Boston,MA02163,orgoto—electronic,mechanical,photocopying,recording,orotherwise—withoutthepermissionofHarvardBusinessPublishing.HarvardBusinessPublishingisanaffiliateofHarvardBusinessSchool.TIMOTHYLUEHRMANJOELHEILPRINBlaineKitchenware,Inc.:CapitalStructureOnApril27,2007,VictorDubinski,CEOofBlaineKitchenware,Inc.(BKI),satinhisofficereflectingonameetinghehadhadwithaninvestmentbankerearlierintheweek.Thebanker,whomDubinskihadknownforyears,askedforthemeetingafteragroupofprivateequityinvestorsmadediscreetinquiriesaboutapossibleacquisitionofBlaine.AlthoughBlainewasapubliccompany,amajorityofitsshareswerecontrolledbyfamilymembersdescendedfromthefirm’sfounderstogetherwithvariousfamilytrusts.Familyinterestswerestronglyrepresentedontheboardofdirectorsaswell.Dubinskiknewthefamilyhadnocurrentinterestinselling—onthecontrary,Blainewasinterestedinacquiringothercompaniesinthekitchenappliancesspace—sothisoverture,likeafewothersbeforeit,wouldbepolitelyrebuffed.Nevertheless,Dubinskiwasstruckbythebanker’sassertionthataprivateequitybuyercould“unlock”valueinherentinBlaine’sstrongoperationsandbalancesheet.UsingcashonBlaine’sbalancesheetandnewborrowings,aprivateequityfirmcouldpurchaseallofBlaine’soutstandingsharesatapricehigherthan$16.25pershare,itscurrentstockprice.Itwouldthenrepaythedebtovertimeusingthecompany’sfutureearnings.WhenthebankerpointedoutthatBKIitselfcoulddothesamething—borrowmoneytobuybackitsownshares—Dubinskihadasked,“Butwhywouldwedothat?”Thebanker’sresponsewasblunt:“Becauseyou’reover-liquidandunder-levered.Yourshareholdersarepayingapriceforthat.”Inthedayssincethemeeting,Dubinski’sthoughtskeptreturningtoasharerepurchase.Howmanysharescouldbebought?Atwhatprice?WoulditsapBlaine’sfinancialstrength?Orpreventitfrommakingfutureacquisitions?BlaineKitchenware’sBusinessBlaineKitchenwarewasamid-sizedproducerofbrandedsmallappliancesprimarilyusedinresidentialkitchens.OriginallyfoundedasTheBlaineElectricalApparatusCompanyin1927,itproducedthen-novelelectrichomeappliances,suchasirons,vacuumcleaners,waffleirons,andcreamseparators,whichweretoutedasmodern,clean,andeasiertousethancounterpartsfueledbyoil,coal,gas,orbyhand.By2006,thecompany’sproductsconsistedofawiderangeofsmallkitchenappliancesusedforfoodandbeveragepreparationandforcooking,includingseveralbrandedlinesofdeepfryers,griddles,waffleirons,toasters,smallovens,blenders,mixers,pressurecookers,steamers,slowcookers,shreddersandslicers,andcoffeemakers.4040OCTOBER08,2009DoNotCopyorPostThisdocumentisauthorizedforuseonlybyZhangZhouuntilJan[e-mail]617.783.7860.4040|BlaineKitchenware,Inc.:CapitalStructure2BRIEFCASES|HARVARDBUSINESSPUBLISHINGBlainehadjustunder10%ofthe$2.3billionU.S.marketforsmallkitchenappliances.Fortheperiod2003–2006theindustrypostedmodestannualunitsalesgrowthof2%despitepositivemarketconditionsincludingastronghousingmarket,growthinaffluenthouseholders,andproductinnovations.Competitionfrominexpensiveimportsandaggressivepricingbymassmerchandiserslimitedindustrydollarvolumegrowthtojust3.5%annuallyoverthatsameperiod.Historically,theindustryhadbeenfragmented,butithadrecentlyexperiencedsomeconsolidationthatmanyparticipantsexpectedtocontinue.Inrecentyears,Blainehadbeenexpandingintoforeignmarkets.Neverthelessin2006,65%ofitsrevenuewasgeneratedfromshipmentstoU.S.wholesalersandretailers,withthebalancecomingfromsalestoCanada,Europe,andCentralandSouthAmerica.Thecompanyshippedapproximately14millionunitsayear.Therewerethreemajorsegmentsinthesmallkitchenapplianceindustry:foodpreparationappliances,cookingappliances,andbeverage-makingappliances.Blaineproducedproductforallthree,butthemajorityofitsrevenuescamefromcookingappliancesandfoodpreparationappliances.Itsmarketshareofbeverage-makingapplianceswasonly2%.MostofBKI’sappliancesretailedatmediumpricepoints,atorjustbelowproductsofferedbythebest-knownnationalbrands.BKI’smarketresearchconsistentlyshowedthattheBlainebrandwaswell-knownandwell-regardedbyconsumers.Itwasassociatedsomewhatwith“nostalgia”andthecreationof“