Hill Country Snack Foods Co, located in Austin, Texas, mainly manufactured, marketed, and distributed a variety of snacks. The company’s efficient operations, quality products, and comprehensive network of distribution promote stable growth and enduring success. Investors owe the achievement of Hill Country to Howard Keener，the company’s CEO for over fifteen years, who strongly believed that management’s job was to maximize shareholder value. Keener himself was actively involved in efficient operations and tight cost controls, which brought a strong commitment to efficiency and controlling costs into company culture. The final component of Hill Country’s culture and managerial philosophy was caution and risk aversion. Hill Country never had great leaps in its product markets, instead believing extensions of existing products, with a series of small but successful product launches, would quickly contribute positive operating profits. Furthermore, as the CEO had strong preferences for equity finance and against debt finance, debt was avoided, investments were funded internally, and the balance sheet was strong. The company also held large cash balances to increase both safety and flexibility.
However, the company’s cash position and conservative capital structure had a negative impact on its financial performance measures. In order to significantly increase return of equity, a proposition is to repurchase common stocks, with bills being paid by issuing bond and excess cash.
The pros and cons for Hill Country to repurchase stocks by issuing bonds
Share repurchase is a program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. Because a share repurchase reduces the number of shares outstanding, it increases earnings per share and tends to elevate the market value of the remaining shares. Share repurchase is usually an indication that the company's management thinks the