Kohler Case Summary

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Brandon Owens Kohler Case The Kohler case outlines an issue involving the “fair value” of a company’s stock. In April of 2000, Herbert Kohler Jr. was faced with two choices: to go to court and stand trial in a civil suit where a judge would determine whether or not a re-capitalization that had taken two years earlier had properly valued the company stock, or to settle out of court with the plaintiffs and give them a higher value for the stock they owned. This decision was difficult because, while he was confident the stock price the company had set when re-capitalizing had been fair, he knew that the law was ambiguous about what “fair value” meant and if the judge ruled against him he could stand to lose a lot of money based on the arbitrary price that would then be set by the court. However, if he wanted to avoid court altogether he would need to offer the plaintiff’s a higher value for the stock and he was unsure how high he would be willing to go and if it would abate the situation. The economic considerations were substantial because not only would the decision raise the overall cost of the recapitalization, it would establish two undesirable precedents. The assets of Kohler Foundation, the charitable division of the corporation, were comprised entirely of Kohler Co. stock. If the price were to change, all short and long term projections for the foundation would need to been altered. Likewise, Kohler’s brother had recently passed away and the new value set by the court would, more than likely, affect the value of the deceased’s estate, which Kohler would then have to account for. The Kohler Company, as a manufacturer of plumbing fixtures, began when Kohler’s ancestor had decided to alter farm equipment and sell it as a bathtub. The success of this invention resulted in the Kohler name being associated with high quality plumbing fixtures. In 1900, the

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