Kohler Case

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Introduction Kohler Company was faced with a very tough decision of whether or not to settle outside of court or go to court to settle with the dissenting shareholders. We will take you through the history of the company and why they recapitalized. Also, we will touch on some of the risks of going to trial to have the courts set a price. We have also broken down the numbers and found many different prices found by using the dividend growth model and the multiples approach. We will also show how different outcomes will affect Kohler’s retained earnings and cash standing. In the end, we believe we have chosen the best possible price to make everyone in the case happy without much sacrifice from either side and without having to go to court. History & Privacy Issue By creating a hog trough John Michael Kohler established one of the most profound plumbing companies in the world. In addition to the continual development and production of plumbing supplies Kohler also hit many other markets since its formation in 1873. The company’s private dedication to excellence has allowed them expand and seek control of these other industries. Some of these include furniture, engines, generators, rental services, and most recently the elegant golfing resort destinations which gives travelers a sense of privacy. Privacy happens to be one of Kohler’s most important values of which their success can be partially credited to it. In a publicly held firm, the company’s ownership is held and controlled by outsiders who had in some way bought into the firm as an investment, but in Kohler’s case being private means something totally different.

2 Since the company’s development and upcoming ownership has generally stayed within the family and maintained a completely private state of control. This means both family members and employees are distributed the ownership of the firm though shares. Forbes claims that Kohler’s success can be credited towards going and staying private because this implements a strategic long-term plan that will keep the tenure of the business within the family who is valued immensely. As a proposed way of getting the firm to a more private state after some shares had been sold to outsiders as an investment, Herbert V. Kohler, Jr. sought after recapitalization. This made it nearly impossible for any Kohler “family” member to sell shares to the public. After the proposals were implemented the shares were now held by a sort of ironclad trust that makes a public offering or outside sale very unlikely. One of Kohler’s first big moves that indicated to its family members that privacy was of utmost importance took place in 1912 when the villages of Riverside, WI were developed. Houses were built and sold to workers for cost and included recreational areas, open spaces, and eventually The American Club, this created a sort of utopian Kohler Village gave it’s family members a sense of belonging and strong tie with the company. In the 1970s the buildings were eventually tore down as an investment of Kohler to put up office buildings and a very famous golf course known as Whistling Straits. Along with theses establishments Kohler further expressed its company’s continual search of success by creating an opportunity for synergy; they showcased their own furniture, fixtures, whirlpool bathtubs, and power generators. Another plus of being private is the opportunity to be more patient during the business decision making process. This is due to no added stress from Wall Street and

3 public brokers who have no idea what Kohler is all about like its family members do. Kohler did no want to deal with Wall Street making critical decisions for them. It was stated that Wall Street could have possibly vetoed the idea of expansion into the resort destination business because at first it may have sounded paradoxical, going from plumbing to vacationing, but as we have read this happens to be one of the firm’s most recent and biggest successes....
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