Bki: Capital Structure

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Blaine Kitchenware, Inc (BKI) has 80 year history and operates in small home appliance industry. Its revenue generating streams include the sale from food preparation, sale from cooking appliance and a small portion of sale from beverage preparation appliances. In the mid of 2007, BKI’s CEO Victor Dubinski faces the decision whether to proceed a leveraged share repurchase. He needs to think about the advantages and disadvantages of this plan and figure out what is best for the company. INDUSTRY ANALYSIS: The small kitchen appliance industry has strong seasonality and is cyclical with the macroeconomic. Holidays, housing buying and renovating peaks are the market driven factors. The net margin of industry average is 9.71% and growth in dollar sales from 2003 to 2006 is only 3.5% despite a strong economic environment. Historically fragmented, the industry is experiencing consolidations the trend will be continued. The following five force analysis reveals the medium to low industry attractiveness. The Threat of Entry – There is no effective entry barrier in this industry, so the threat of new entry will be quite high. There is no technology proprietary and the learning curve as a barrier of entry also has minimal effect. It’s true that firms operate over long time can reduce the cost by increasing efficiency, but efficiency is not the only cost driver in this industry and will not significantly concern the new comers. The Threat of Rivalry – The threat of rivalry is very high. There are high competitions in low-end segments among mass merchandisers and white-box products. The high-end market competitions are also rigorous, especially with the Asian imports and private label products. What’s worse is the price war initiated from aggressive rivals with the intention of buying market share and sales growth. There are possibility for product differentiation such as

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