Blaine Kitchenware Essay

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Blaine kitchenware was founded in 1927 by the great-grandfather of the current CEO, Victor Dubinski. Although Blaine is a public company since 1994, family members control the majority right of the shares. Thus, their interests are strongly represented on the board of directors. The company produces small appliances primarily used in residential kitchens. Blaine Kitchenware represents 10% of the U.S market share of the industry (market = $2.3bn) but is also present in foreign market. The company’s recent strategy moves include increasing its presence on the foreign market, growing its beverage preparation appliance segment and competing in higher-end segment with higher price point. Despite the company’s profitability (net income of $53.6m on revenue of $342m), the company lacks of organic growth and all of its recent growth is due to acquisition. When comparing the ROE of the industry, one can observe that Blaine Kitchenware (11%) is significantly below the average (25.9%). In recent years, the company increased its number of outstanding share to finance its acquisitions, which raised the payout ratio to more than 50% in 2006. Blaine Kitchenware fears that such a dividend policy isn’t sustainable in the future. Indeed, if the company keeps a high dividend payout without the cash flow to back it up, it will have to reduce its investment plans or turn to investors for additional debt or equity financing. As pointed by a banker, because the company is over-liquid and under-levered, using Blaine kitchenware’s excess cash and new borrowing, a private equity firm could buy all the outstanding share of the company. In light of that discovery and fearing this hostile takeover, Victor Dubinski is thinking of revising the company’s financial policy (i.e. repurchasing its outstanding shares by increasing its debt instead of financing its acquisition with equity). .

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