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Case #33 November 22, 2011

Presented by: DJ Douglas Chasiti Dixon. Case #33 November 22, 2011. History. Defense Attorneys Larry Flax and Rick Rosenfield created the first California Pizza Kitchen in 1985 in Beverly Hills, California

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Case #33 November 22, 2011

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  1. Presented by: DJ Douglas Chasiti Dixon Case #33November 22, 2011

  2. History • Defense Attorneys Larry Flax and Rick Rosenfield created the first California Pizza Kitchen in 1985 in Beverly Hills, California • By 2007: 213 locations in 28 states and 15 international franchises in 6 foreign countries • Three sources of income: sales at company owned restaurants, royalties from franchised restaurants and royalties from a partnership with Kraft foods to sell CPK-branded frozen pizzas http://www.youtube.com/watch?v=glF02oZ_QB8

  3. The Power of Susan Collyns • Facilitating success: • Increase advertising • Increase leverage using debt financing • Purchase U.S. Treasury Securities • Change Capital Structure Policy • Repurchase stock option

  4. Effect of Leverage on ROE

  5. Effect of Leverage on Cost of Capital • CAPM = bL = bU[1 + (1 − T)D/E]

  6. WACC

  7. CPK Share Price

  8. Stock Price &Total Capital Structure

  9. Treasury stock- “Repurchases”

  10. CPK No Longer Publically Traded “Shares in California Pizza Kitchen first traded on the NASDAQ National Market on August 2, 2000 under the ticker symbol CPKI.  On July 7, 2011, CPK and Golden Gate Capital announced the successful completion of the acquisition of CPK by an affiliate of GGC.  As a result of the acquisition, our common stock is no longer publicly traded.” http://www.cpk.com/faqs/

  11. Interest Tax Deductions Increased wealth to shareholders due to stock repurchase without double taxation.

  12. Recommended Capital Structure Policy • Repurchase 2.65 million shares of stock • at a cost of $58,565,000 • using the 30% debt financing option totaling $67.7 million • EPS decrease = $.04 • ROE increase= 3.61% • Cost of Capital increase= 0.91

  13. Questions?

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