1. What is going on at American Greetings?

2. What is the market thinking when assigning an Enterprise-value-to-EBITDA ratio of 3.5 times?

3. How might a DCF analysis be used to value American Greeting shares?

4. Should American Greeting management repurchase the shares?

This case examines the 2012 share repurchase decision of greeting card company American Greetings. At the time of the decision, American Greetings stock was trading at valuation multiples that were the lowest among its peer group and the greeting card industry was facing an important structural shift. As the decision hinges in part on the value of the company, students are invited to build a simple model of the company’s future cash flows and derive an implied value. As the company is arguably in a state of maturity or decline, a discussion of steady state economics is particularly germane.

The case is designed to provide an introduction to firm valuation. The case provides opportunities for the instructor to develop any of the following teaching objectives:

• Introduce firm valuation techniques based on a simple discounted cash flow model or market multiples.
• Stimulate an appreciation for terminal value assumptions and their impact on firm valuation.
• Build intuition on the relationship between firm growth, operating profitability, and value creation.
• Discuss shareholder distribution policy theory and practice with regard to share repurchases and dividends.