Blaine Kitchenware Case

4040
OCTOBER 08, 2009

TIMOTHY LUEHRMAN
JOEL HEILPRIN

Blaine Kitchenware, Inc.: Capital Structure
On April 27, 2007, Victor Dubinski, CEO of Blaine Kitchenware, Inc. (BKI), sat in his office
reflecting on a meeting he had had with an investment banker earlier in the week. The banker, whom
Dubinski had known for years, asked for the meeting after a group of private equity investors madediscreet inquiries about a possible acquisition of Blaine. Although Blaine was a public company, a
majority of its shares were controlled by family members descended from the firm’s founders
together with various family trusts. Family interests were strongly represented on the board of
directors as well. Dubinski knew the family had no current interest in selling—on the contrary,
Blaine wasinterested in acquiring other companies in the kitchen appliances space—so this overture,
like a few others before it, would be politely rebuffed.
Nevertheless, Dubinski was struck by the banker’s assertion that a private equity buyer could
“unlock” value inherent in Blaine’s strong operations and balance sheet. Using cash on Blaine’s
balance sheet and new borrowings, a private equity firmcould purchase all of Blaine’s outstanding
shares at a price higher than $16.25 per share, its current stock price. It would then repay the debt
over time using the company’s future earnings. When the banker pointed out that BKI itself could do
the same thing—borrow money to buy back its own shares—Dubinski had asked, “But why would
we do that?” The banker’s response was blunt: “Because you’reover-liquid and under-levered. Your
shareholders are paying a price for that.” In the days since the meeting, Dubinski’s thoughts kept
returning to a share repurchase. How many shares could be bought? At what price? Would it sap
Blaine’s financial strength? Or prevent it from making future acquisitions?

Blaine Kitchenware’s Business
Blaine Kitchenware was a mid-sized producer of branded smallappliances primarily used in
residential kitchens. Originally founded as The Blaine Electrical Apparatus Company in 1927, it
produced then-novel electric home appliances, such as irons, vacuum cleaners, waffle irons, and
cream separators, which were touted as modern, clean, and easier to use than counterparts fueled by
oil, coal, gas, or by hand. By 2006, the company’s products consisted of awide range of small kitchen
appliances used for food and beverage preparation and for cooking, including several branded lines
of deep fryers, griddles, waffle irons, toasters, small ovens, blenders, mixers, pressure cookers,
steamers, slow cookers, shredders and slicers, and coffee makers.________________________________________________________________________________________________________________
HBS Professor Timothy A. Luehrman and Illinois Institute of Technology Adjunct Finance Professor Joel L. Heilprin prepared this case solely as
a basis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management.
This case, though based on real events, is fictionalized, and any resemblance to actual persons orentities is coincidental. There are occasional
references to actual companies in the narration.
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4040 | Blaine Kitchenware, Inc.: Capital Structure

Blaine had just under 10% of the $2.3 billion U.S. market for small kitchen...