The Impact of Blaine Kitchenware Acquisition on Its Financial Position

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Blaine Kitchenware Inc, the mid-sized manufacturer of branded small appliances, was founded in the year 1927. The company used to produce home appliances such as vacuum cleaners, cream separators, and irons. However, being a family-owned business, the company has contracted various manufacturers in different counties such as China, Canada, and Vietnam. Under the leadership of Victor Dubinski, the company undertook a different a strategy of engaging in dilutive acquisition in which it acquires small independent manufactures with the key aim of complementing its products offerings (Luerhman and Helprin 1). The approach solely focused on ensuring they can expand on their business and provide the required products to their customers. The strategy of acquisition later led to changes in customer buying behavior as well as market trends. The change in the buying patterns of customer influenced the sales of the firm and hence results in a high loss for the company.

Furthermore, the acquisition involves the use of cash or the stock of the company. In the year 2006, the first acquisition decreased the margin or profit of the company. And this led to low returns to shareholders and as a result, put the financial position of the company at risk. For that reason, the company management was to repay debt using the future earnings, which can be achieved through acquisition that was now not possible according to the company policies. And the issue led to more thinking to the Dubinski, the company CEO on whether to repurchase the firm shares or not (Luerhman and Helprin 1). The key reason why dilutive acquisition is the issue in the case is that it led to the loss of income for the company since the customer buying behavior changed and as a result influencing how the firm is operating. The acquisition was also an issue since it pushed the company to ensure its imports and exports are carried out effectively, but later it did not. Most of the competitors later reduced their price, and as a result, it posed more challenges to the firm (Luerhman and Helprin 1). The reduction of price by other company influence Blaine Company, but they did not have enough funds to ensure such approach is carried out as required. Therefore, the Blaine Kitchenware experienced a severe loss in the market as well as loss in the shares due to engaging in more acquisition. However, even though acquisition enabled the firm to grow and achieve some of its objectives, it was also the key reason on why the Blaine Company could not progress in the market (Luerhman and Helprin 2).

Provide a Recommended Course of Action. Why this Recommendation? Justify both quantitatively and qualitatively. What other possibilities were considered? Why were these other possibilities discarded?

An acquisition is considered to have a financial impact towards the operation of a company and can disrupt the firm sales volume if not taken into consideration. Hence, this is the same challenge for the Blaine Kitchenware and for that reason it is recommended for the management not to engage in dilutive acquisition before understanding their financial position and how the acquisition will impact their business. This is because understanding the company financial position can assist the firm in analyzing the kind of acquisition to engage in future.

However, there are some possibilities that the company considered for instance repurchasing of shares. Although, this possibility was discarded because it would force the company management to borrow more hence put the firm into more debts. Another possibility was for the management to discontinue acquisition, although such a possibility was not considered because the company focused on expanding to other markets.

What are the Expected Benefits from this Recommended Course of Action?

Understanding the financial position of the company plays a crucial role in making sure the acquisition process is conducted effectively. Therefore, it is important to determine the financial resources required by executing a thorough financial health assessment. This is because, during the recession, the majority of firms has shifted their concentration away from the profit and the lost statements and focuses more on liquidity. Once the firm has determined if they have the liquidity to be able to make and sustain a given investment, then they can be able to check in case their capital structure can sustain the added strain, this will enable the company to balance their financial statement effectively (Aharon, Gavious and Yosef 456). A firm being able to understand well their financial position is crucial since they will be able to utilize the available resources effectively and ensure the company shares is safeguarded from any other loss which might be incurred in the process of shifting from one business to another (Aharon, Gavious and Yosef 459). Also, the company will also be able to prioritize and understand the needs of the customer and make sure quality and services are provided continuously to minimize issues of changes in customer’s preferences. An organization can fail if they engage in acquisition without taking into consideration their customers and how well they can implement the process effectively.

What are the possible downsides from this Recommended Course of Action?

On the other hand, conducting or analyzing the financial position of the firm before engaging in acquisition can also have some few challenges. Firstly, it can be regarded to be time-consuming since the firm will have to find ways and also make fundamental analysis regarding their various sources of funds. This is because, for effective acquisition, a company is required to conduct a further financial evaluation of its business and understand in case they can acquire another company. This needs time and enough resources by employing people who can assist in making sure all key concepts are understood as required. Also, the company will take more time analyzing making the key recommendation on the possible way to acquire other firms. Another possible outcome related to a firm understanding their position is that it can also be costly and the company in most cases can lose interest in expanding to other markets due to the cost involved in the whole process. Also, the high cost can as well hinder on how the company has planned to engage or participate in the process of acquiring another firm (Aharon, Gavious and Yosef 470).

Work cited

Aharon, D.Y.; Gavious, I.; Yosef, R. "Stock market bubble effects on mergers and acquisitions" The Quarterly Review of Economics and Finance. 50 (2010): 456–470.

Luerhman, Timothy and Helprin Joel. Blaine Kitchenware Inc: Capital Structure.Havard Business Publishing.Boston. 2009.Print.

January 19, 2024
Category:

Business Economics

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Corporations Finance

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Company

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