Kohler Valuation

Kohler Case

Introduction

Kohler Company is a well known name in the field of plumbing products and also manufactures furniture, cabinetry, tile, engines, and generators. In the year of 1998 the company decided to recapitalize its capital structure, and implemented the plan to buy back shares from non-family shareholders. What followed soon was an ensuing battle between Kohler and the Shareholders on the issue of what the share price should be?

Recapitalization

The main reasons to recapitalize were:

* Being private would enable it to take strategic decisions that would have been impossible if it were a public company.

* Not required to disclosure of financials and other company information.

* Recently the share price had risen to an unexpected level that arose with speculation of Kohler going public, leading family members to sell their shares to outsiders further diluting the ownership.

Kohler set the share price at $55,400 based on their growth assumptions of the company, however the dissenting shareholders challenged this price and filed a lawsuit in the court as they felt that the share’s worth was more than that at $273,000.

Ramifications for Kohler in case of trial

A trial would not be in the favor for Kohler as it entailed lot of legalities which took a lot of money and time. Hence they preferred an out of court settlement, primarily because:

* In case they lost the case Kohler had to shell out huge sums of money to those shareholders around 221 million ($273,000 * 811) which was less than their projected Net Income for 2002 and that could be a huge loss to the company and hinder its profitability.

* The Kohler foundation which was comprised of Kohler stock pledged 5% of its assets to charity and hence if the case was settled at higher price they would have to donate around 13 million which would be a lot considering that it would be just 2 million if the settlement price was lower and they wanted the money to remain in the Kohler...