Blaine Kitchenware, Inc.

Executive Summary

Blaine Kitchenware, Inc., produces a wide range of small kitchen appliances used for food and beverage preparation and cooking, which includes several branded lines. Victor Dubinski, the great-grandson of one of the founders of the company, and is now the CEO of the company. Blaine Kitchenware is a public company, but the majority of its shares are controlled by family members (own 62% of shares), whom were strongly represented on the board of directors. Victor has met with an investment banker and was faced with a difficult decision about a possible acquisition of Blaine Kitchenware. Although, the family had no interest in selling, Blaine was interested in acquiring other companies in the kitchen appliance space. The banker’s told Victor that a private equity buyer could “unlock” value inherent in Blaine’s strong operations and balance sheet. A private equity firm could repurchase all of Blaine’s outstanding shares at a higher price than its current stock price, $16.25 per share, by using cash on Blaine’s balance sheet and new borrowings. The banker pointed out that Blaine could do the same thing itself and borrow money to buy back its own shares, since Blaine is over-liquid and under-levered and their shareholders are paying the price for that. The main issue arises, should Blaine Kitchenware repurchase its own stocks or not? The final recommendation would be for Blaine to repurchase the shares because it would be very beneficial to the company, increasing the value of the firm and EPS, and especially because of the financial position the company is in as well (See “Pro-Forma Balance Sheet,” and “Pro-Forma Income Statement” in excel file ‘BlaineSaidChristine.xlsx.).

I. Are Blaine’s current capital structure and payout policies appropriate?

Although Blaine Kitchenware, Inc., had the strongest balance sheet in the industry; dilutive acquisition has drawn the company’s ROE to 11% in 2006, which is below the industry average. With the current capital structure Blaine was over-liquid and under-levered, with their shareholders suffering from the effects. The company had too much cash and carried no debt, which reduces the enterprise value and makes acquisition attractive to potential buyers since they would be able to use cash to pay the acquisition cost.

II. How would the proposed share repurchase affect Blaine?

With the proposed share repurchase, the value of the firm would increase by over $9 million, and EPS