KOHLER COMPANY Harvard Case Solution & Analysis



Kohler Company (A) is one of the largest manufactures of small engines and generators in United States. In order to acquire maximum market share, Kohler Company is looking for expansion through product diversification. As new products have been introduced into business such as, furniture’s and luxury resorts.


External shareholders account for only 4%, and Kohler clearly sees the benefits of private enterprise. These measures include non-disclosure of financial data (i.e., not having to disclose your data and operational details to individuals who are unable to make full use of the data (such as competitors)), not having to comply with other regulatory requirements imposed by an exchange. and making decisions that truly serve the interests of the business (i.e., not simply because of their popularity with shareholders).

However, Kohler also made it clear how far they will go to maintain this position and its benefits. Earlier this year, Kohler’s chairman and CEO, Herbert Kohler (Jr.), called for a restructuring of the company’s capital structure to acquire non-family shareholders and restrict future sales to individuals. outside the joint stock company.

For those who want to benefit from the plan (such as family members, their assets and funds, Kohler-sponsored charities, and the Kohler Employee Plan), this means acquiring a common share with voting rights. and 250 restricted shares. 244 Series A non-voting shares or 5 Series B non-voting shares for each share. However, for those who are not eligible (as an external shareholder), this means accepting a monetary value in proportion to the number of shares they own, or suing Kohler Rt in the hope of acquiring "fairness" as determined by the court.

The company’s more than 100 outside shareholders are dissatisfied with the independent appraiser’s (Kohler’s chosen) purchase price of $ 55,400 per share, and believe that these shares are actually worth $ 273,000 per share. In other words, that means Kohler underestimated his stock about five times.

These Kohler shareholders were largely able to reach this number because of the guaranteed public share prices that the Kohler Company occasionally trades, suggesting that the Kohler Corporation may request a first public offering. If these outside shareholders are unable to achieve a higher “fair value,” approximately $ 176 million in expenses will be incurred, excluding legal fees or other costs incurred jointly.

In order to understand the arguments, put forward by the two parties as independent valuers, we compiled Kohler’s valuation using discounted cash flow and a comparable management method.

We believe Kohler is a going concern because we have no reason to believe that the company will go bankrupt or go into liquidation. We also found that the proportion of business ownership supporting the recapitalization plan did not change significantly. Therefore, we use the perpetual growth method to calculate Kohler’s discounted cash flow.

The company’s revenue growth rate fluctuates irregularly each year, so it is incorrect to assume that this growth is simply advancing or using the average growth rate to calculate future revenue. Therefore, a constant growth rate of 3% is used to calculate the final Kohler value. Based on this, we were able to reach a stock price of $ 137,800, but due to marketing discounts (25%) and lack of control (40%), this amount dropped to $ 62,000. The same assessment was made using several output methods. Kohler’s price turned out to be $ 194,450, but after two rebates, that amount dropped to $ 87,500.

In evaluating comparable companies, we decided to compare Kohler’s benchmarks with American standards, American Timber Marks, Briggs & Stratton and Cummins Engines - these companies were chosen for their business considerations and / or size and their income. Kohler.

By calculating the average EV / EBITDA and EV / revenue multiples of the comparable universe, we can calculate Kohler’s implicit business value and then obtain the price per share.

Multiple Valuation Technique:

The multiple Valuation technique is used to calculate the enterprise value per share. Kohler Company (A) per share price can be calculated by using different multiples in comparison of competitors, that is sales multiples, earnings before interest and tax (EBIT) multiple, earnings before interest, tax, amortization and depreciation (EBITDA) multiple or cash flow multiple. Sales, EBITDA, EBIT and Cash flow multiple, per share price is calculated by multiplying the value of sales, EBITDA, EBIT and Cash Flow as the case may be, of Kohler Company (A) with the average respective multiple ratio of the competitor. The enterprise value is calculated by using the sales multiples and is $328,332 per share. The enterprise value per share in earnings before interest, tax amortization and depreciation (EBITDA) multiple are $215,368. Per share enterprise value using the earnings before interest and tax (EBIT) is $186,983. Using the cash flow multiples per share enterprise value of Kohler Company is $241,925...

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