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Blaine Kitchenware, Inc.: Capital Structure

Question: As a member of Blaines controlling family, would you be in favour of this proposal?
Would you be in favour of it as non-family shareholder?
Being a part of the Blaine family it would be in the best interest of the entire family
members as well as me to change the capital structure of the organization by the redemption of
some of the shares of the company and taking in some debt to finance the company. The option
of bringing in investment into the family through debt option is also risky in terms of the
paybacks. The debt will have to be taken with collateral kept with the lender so if the family is
unable to pay back the loan they will have to forgo the collateral. The debt option also reduces
the capability of the family to pay its short term expenses and reduces liquidity.
However, despite the risks involved in debt financing, the past financial results and the
future trends of Blaine show that the family business has a very strong and secure place in the
market with good market share, financial position, customer base and enthusiastic leaders. With
all these strengths and bright future ahead it is more desirable to hold more shares in the
company and buying back the shares of the company using debt financing would also bring
changes in the financial data of the company as the earnings per share and some other figures
might rise very high. The increase in the ownership of the shares by the family would not
increase the value of its shares immediately as increase in the ownership, in terms of percentage,
would decrease the owners equity as debt adds to the liabilities of the company. The tax shield

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that would be provided by the debt financing would be another major reason of why I would be
willing to buy back the shares of the company.
As a non-member shareholder I would be against this proposal because the interest
payments would decrease the taxable income of the company and therefore result in decrease in
dividends and availability of more cash flows to the company rather than the non-family
shareholders.

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Works Cited
Luehrman, Timothy, and Joel Heilprin. "Blaine Kitchenware, Inc.: Capital Structure" Harvard
Business School 8 Oct, 2009: 1-9. Print.