Posted: 9 May 2005
Date Written: March 7, 2005
SUBJECT AREAS: family owned businesses, valuation, recapitalization, stockholders
CASE SETTING: April 2000, plumbing fixtures industry, Kohler (Wisconsin, U.S.A.)
Kohler Co., best known for its plumbing fixtures, is a large private family firm. As part of a recapitalization aimed at preserving family ownership of Kohler Co., non family shareholders, who held 4% of the common stock, were required to sell their shares to the company. A group of dissenting shareholders filed a lawsuit claiming that the buyout price undervalued their shares by a factor of five. In April 2000, Herbert V. Kohler, Jr., Chairman and CEO, has to decide whether to settle with the dissenters and, if so, at what share price. The decision calls for a detailed valuation of the company at the time of the recapitalization. The case provides the necessary data for students to value the company using both a discounted cash flow approach and a multiples (comparable companies) approach. Students are required to identify and understand the different valuation assumptions that can lead to a wide range in prices, including the applicability of discounts for lack or marketability and lack of control. Exhibits are available in electronic form to facilitate the analysis of the data (HBS Courseware No. 205-707). Teaching purpose: Valuation of privately held firms from the perspective of both the controlling shareholder(s) and minority shareholders.
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