Blaine Kitchenware

Blaine Kitchenware – Case Assignment

MBA – Corporate Finance

You have been hired as a consultant to Victor Dubinski, the CEO of Blaine Kitchenware. You are charged with putting together a written report with supporting numerical analysis that addresses the following items:

1. Is the current capital structure and payout policy for Blaine optimal? Explain and justify your conclusion. Use numbers whenever possible.

1. Should Blaine recommend a large share repurchase to the Board of Directors? What are the advantages and disadvantages of this action? Again, explain and justify your conclusions. Use numbers whenever possible.

1. Consider two specific share repurchase proposals:

   1. First Proposal

      1. Blaine will issue $50 million in new debt at an interest rate of 6.75%

      2. Blaine will use $209 million of cash from its balance sheet

      3. Blaine will use these two sources of cash to repurchase 14 million shares at $18.50/share.

1. 1. Second Proposal

      1. Blaine will issue $95 million in new debt at an interest of 6.875%

      2. Blaine will use $209 million of cash from its balance sheet

      3. Blaine will use the two sources of cash to repurchase 16 million shares at $19.00/share.

1. 1. Third Proposal

      1. Blaine will issue $156 million in new debt at 7.125%

      2. Blaine will use $209 million of cash from its balance sheet

      3. Blaine will use the two sources of cash to repurchase 18.5 million shares.

1. 1. How does a share repurchase affect Blaine? Consider the impact on items including (but not limited to) Blaine’s EPS, ROE, interest coverage, debt ratio, debt rating, the family’s ownership interest (proportion of shares outstanding) and the company’s cost of capital (WACC).

1. 1. What is your recommendation for the good of the company based on your analysis of the share repurchase options? Should they stay with the status quo, or go with one of the recapitalization options?