Blaine Case
Blaine Kitchenware is a company that has occupied the industry for over 80 years and continues to gain control in the market it occupies. As the CEO of the company, Mr. Dubinski is dealing with a challenging decision of determining what is best for the family company. He currently feels that the capital structure of the company needs adjustment. He is contemplating the idea of decreasing his equity while increasing his debt in order to increase the value of the company. Dubinski is attempting to meet the needs of the family stake holders and non-family stake holders while still making a decision that in the end is in the best interest of the company itself.
Question #1: Blaine Kitchenware has a unique current method of capital structure. The company currently has no debt. However unlike other small corporations that have no debt, they are a large company that has significant equity issued in the form of stock. Thus, the company has an unusually small debt to equity ratio. While this characteristic is not necessarily always a bad one, in the case of this particular company, its capital structure can be improved. The company could improve its current capital structure by either lowering its percent equity or obtaining some form of debt. In the case of this company, doing both is an option that is explored. The idea that would be employed would be the borrowing of money to repurchase its own shares that have already been issued. Blaine is currently over-liquidated and under-levered. Consequently, shareholders are paying a price for this weakness. The company does not fully utilize its funds. As was stated earlier, Blaine Kitchenware is a public company with large portion of its shares held by family members; these family members have a financial surplus, which decrease the efficiency of the company’s leverage. In 2006, the company had $231
Question #1: Blaine Kitchenware has a unique current method of capital structure. The company currently has no debt. However unlike other small corporations that have no debt, they are a large company that has significant equity issued in the form of stock. Thus, the company has an unusually small debt to equity ratio. While this characteristic is not necessarily always a bad one, in the case of this particular company, its capital structure can be improved. The company could improve its current capital structure by either lowering its percent equity or obtaining some form of debt. In the case of this company, doing both is an option that is explored. The idea that would be employed would be the borrowing of money to repurchase its own shares that have already been issued. Blaine is currently over-liquidated and under-levered. Consequently, shareholders are paying a price for this weakness. The company does not fully utilize its funds. As was stated earlier, Blaine Kitchenware is a public company with large portion of its shares held by family members; these family members have a financial surplus, which decrease the efficiency of the company’s leverage. In 2006, the company had $231