Kohler. Co Harvard Case Solution & Analysis

Kohler. Co Case Solution

Problem Background

This case focuses on the importance of Family domination over the private entity. Recently Herbert V. Kohler (Grandson of Kohler family) elected as the Chairman and CEO of the company. He was aware of the majority of shareholders and wanted to strict the level of non-family shareholders in order to recapitalize the structure with shares buyout.

kohler co case solution

kohler co case solution

Kohler Co. was established in 1873, which was founded by John Michael. The company was manufactured plumbing fixtures in Sheboygan, Wisconsin. After some years of success, the company shifted towards the engineering and technical developments. Moreover, itprovided electric generators during 1920s.

DuringWorld War II, the company was also engaged to produce war weapons and supplied to different troops. Walter Kohler was the leader of the company during thoseyears. After his death in 1940, his half-brother, Herbert V.Kohler was elected to lead the family business.

In 1950, the company expanded its business into different regions of the countryas well as the company introduced new colours of plumbing fixtures in 1965. Herbert Kohler died in 1968 and after his death, for the first time the company elected non-family vice president whowas changed in some years and backed to the origin of family dominance.

On the other hand,the success of the companyhadshown tremendous results from 1970 to 1997 until the issue of the dispute against the shareholders. The Company always didn’t show the full disclosure of financial performance asit determined the potential threat of competitors and was notlinked with any kind of securities exchange.

In 1978, the Company had made a major decision to reverse the stock split in order to take back the non-family shares from the individual rather than the need to recapitalize because it wanted to reduce the size of the shareholders for its stock.

Finally in 1998, there was a dispute between the company and the individual shareholders regarding the valuation of shares. The total value according to individual shareholders was unfavourable forthemas itwas five times less than the previous year’s value. Furthermore, the management of the company decided to properly value the shares of the Company in order to settle the issue and try to offer the market share price of the company instead of the book value.

Motives for Herbert Kohler and Minority Shareholders

The company has been successful since its inception where the family dominance had controlled the entire company’s structure and profits. During the late 19th century, the company had started to recapitalize in the production department where it wanted some investments for expanding the business into different regions.

The company had introduced public share investments in order to execute its plan for 50 yearswhere two mutual fund companies acted as the outside shareholders with 4% of the total shares involved. These two were SoGen International and Franklin Mutual Discovery Fund, which held about 80 and 30 shares respectively.

Apart from that,the problem to retain the company’s future success hadbeen analysed through different mind-set of family and non-family shareholders whereHerbert Kohler haddifferent ideas to implement as compared to the minority shareholders, who also wanted to benefit from their shares purchases in the company.

The perceptions of both of these two shareholders are quite different from each other and it is defined as follows:

Herbert Kohler

As the chairman and CEO of the Company, he wanted to restrict the outsider shares of the company because it may lead to less involvement in the management decision. The mechanistic mind-set of the CEO clearly reflected to resume the dominance of the family and to clear the boundary of minority shareholders.

He decided to repurchase the shares from these investors in order to disconnect the partnership of these shareholders. He also decided to re-split the shares 1-20 of the net amount,which allowed to reduce the level of equity holders and not to allow the investments for every one outside the family....................

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