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Prepared by:
    Nur Afisha Yusuf Jennifah Nordin Safian Bujang Margaret Lucy Gregory

‘ The perfect duo ice cream and chunks. Business

& Social change. Ben & Jerry ’

Who is Ben & Jerry ??

Scenario of the case

•Leading distributor of super premium ice creams, frozen yogurts and sorbets •Eating was their great passion- start business related to food i.e ice cream •Started in 1978 in Burlington, Vermont •Bought an old gas station as their first ice cream parlour •Founders: Ben Cohen & Jerry Greenfield •Initial investment of $12,000 ($4,000 borrowed)

Scenario of the case
Why start business in Burlington, Vermont?

After conducting a ‘manual’ market search based on criteria such as warm weather and college kids, they found out that all the towns that match the criteria already have their own homemade ice cream parlour
Thus, throwing out the weather criteria, they end up in Burlingtonof whichhad a young population, a significant college population and virtually no competition

Scenario of the case
• Ben & Jerry social commitment/social responsibility • Strong commitment to community • Example: donated 7.5% of its pretax earnings, annual free cone day

What is the Issue in the case study???

Scenario of the case

Increased competitive pressures and declining financial performance has triggered a number of takeover offers by a few companies namely Dreyer’s Grand, Unilever, Meadowbrook lane and Chartwell.

Cofounders Ben Cohen & Jerry Greenfield know that the company’s social orientation requires corporate independence

But Chief Executive Perry Odak feels that Ben & Jerry’s shareholders would be best served by selling out to the highest bidder

Question 1 : What decision does Morgan faced?
To consider the pending takeover offers Dilemma between social commitment of co-founder and maximising the shareholder value Cofounders Ben Cohen & Jerry Greenfield believe that the company’s social orientation requires corporate independence but Chief Executive Perry Odak feels that Ben & Jerry’s shareholders would be best served by selling out to the highest bidder Thus, should B & J’s continue to independently pursue its social agenda or accept one of the attractive takeover offers and shift toward greater profit orientation

Dreyer’s Grand • Offering $31 per share in stock • Maintain B&J Management Team • Operate B&J as a quasi autonomous business unit • Encourage some social endeavors

The Offers

Unilever • Offering $36 per share in cash •Maintain select members of B&J Management Team • Integrate B&J into Unilever’s Frozen desserts division • Restrict Social Commitments & interests

Meadowbrook Lane • Offering $32 per share in cash • Install new management team • Allow B&J to operate as an independent company controlled under the Meadowbrook umbrella • Maintain select social commitments & interests Chartwell • Minority Interest • Install new management team ●Proposed investment between $30 m to $50m (to become the majority shareholder)

Offers can be assessed in terms of : 1) Offer price (Unilever) 2) Management control issue (Dreyer’s Grand) 3) Maintaining social commitment issue (Limited social commitment)

Question 2.1: How did B & J become a takeover target?
b. Financial performance decreased
• Thus leading to the B.O.D meeting to consider the offers

a. Increased competitive pressure

2.2: Hasn’t B & J been successful in fulfilling its mission statement?

Analysis of B & J mission statement i. Product: Make, distribute & sell the finest quality, all natural products in a wide variety of innovative flavors made from Vermont dairy products
 YES B & J able to meet its product mission statement

Variety of B & J ice cream flavours

2.2: Hasn’t B & J been successful in fulfilling its mission statement?
ii. Economic: To operate the company on a sound financial basis of profitable growth, increasing value for our shareholders and creating career opportunities and financial rewards for employees • Sound financial & profitable growth: proven in its financial statements • Increase value of shareholders: the ROE is not enough for the shareholders as evidenced in the statement by Richard McCaffrey page 9.

B & J’s financial statement

Cont…analysis on Economic Mission statement
• creating career opportunities and financial rewards for employees: YES & NO
 Among the first that offer health care benefits to employees  The company followed a compressed payroll policy i.e. the company’s highest paid person could NOT earn more than five times the lowest paid person  Trade off between social missions and employees welfare e.g. some employees complain that the company skimped on their wages and working condition to finance charity of third parties (Shau as cited in Page & Katz, 2010)

iii. Social mission
• Ben and Jerry’s Foundation – Donates minimum $1.1 million per year – Since 1985 the company has donated 7.5% of its pre-tax earnings to various social foundations Supports causes such as Greenpeace International and Vietnam Veterans Expresses Customer Appreciation with an annual free cone day at all of its scoop shops Social Value led Marketing – Development of an ice cream flavour to provide demand for harvestable tropical-rainforest products and represent an economically viable alternative to cutting down trees Social Value led Financing – Initial Public Offer first opened to the citizens of Vermont as a gift to gratify their initial support to the company Social value led Operating decisions – to create a win-win solution to a tricky environment problem the company sponsored 200 piglets to a local pig farmer who made his pigs feed on the milky water discharge from production

• • • • •

YES, B & J’s has fulfilled its social mission

Q 2.3 Would you support the take over? SWOT ANALYSIS
Strength ● powerful brand ●using ingredients of highest quality ● the company name “homemade” creates and nourishes impression in the eyes of the customer ● good employee satisfaction lead to low turnover rate and increases learning effects and employee commitment ●less money spend for advertising Opportunities ● innovative flavours –variety of package sizes, new low fat ice cream ● promotions-free cone holidays on regular basis Weaknesses ● short life cycle for new product flavours ● increased price on Ben & Jerry pints ● High cost structure due to above average wages and supplier policy

Threats ● rises in the cost of dairy products ● dieting habits of a health conscious generation ● slow economy in US impact on sales ● Major competitors such as Haagen Dazs, Nestle Pillsbury & Dean foods offer similar products

• Based on the SWOT analysis, we say NO to the takeover offer based on the following ground:
– The company is financially stable
• E.g. debt asset ratio = 11% (1999)

– Strong brand name – Already have existing infrastructure – Significant social commitment shown

Q 3: What evidence is there that investors are dissatisfied? • Richard McCaffrey (a financial reporter) expressed the opinion of shareholders as follows: For years, despite of increase in sales and earnings, B & J’s stock has maintain around same level i.e. $21 per share  For them, the returns should be better because, apart from having a strong brand name, they also have acquired 45 per cent market share ( of super premium ice cream market)  Furthermore, they are also successful in new product rollouts and business expansion


• Though the ROE show an improvement i.e. 7% in 1998 from 5% in 1997, it is not enough for the shareholders “ That’s lousy by any measure”

B & J’s ROE from 1994-1999

Exhibit 2: Ben & Jerry’s Homemade Stock-Price Performance

Exhibit 6:Investor-Value measures:Ben & Jerry’s and Industry Comparables

Q 4.1 : Who ultimately control the assets of Ben & Jerry’s ? • The assets of Ben & Jerry’s is control by:
Corporate Charter Restrictions 1997 annual meeting-Ben & Jerry shareholders approved amendments to the charter as follows:i. Board have more power to determine the firm’s mission ii. Board divided into three classes for three years term iii. Removal of a director requires a 2/3 majority iv. Any vacancy to be filled by 2/3 majority v. The number of votes to alter, amend, repeal or adopt must acquire 2/3 majority

Differential Voting Rights

3 equity classes- Class A common( 1 share = 1 vote), class B Common (1 share = 10 votes) and class A preferred (share = special voting right)
In April 1998- Vermont Business Corporation Act was amended as follow:Directors are given the authority to consider the interests of the corporation’s stakeholders when determining whether an acquisition offer or other matter was in the best interest of the corporation.

Vermont Legislature

Q 4.2 : In general , how are assets allocated in a free market system?

• Asset allocation is a strategy to disperse invested fun in order to reduce risk and maximising the return
(Lightbulb PressDictionary of Financial Terms, 2008)

• Free market is an economics system that is free from government intervention and solely depends on the market (Farlex Financial Dictionary, 2009) • As for B & J’s, the government i.e. Vermont Legislature gave the authority to B.O.D. of a firm to consider the interest of the firm’s stakeholders when determining whether an acquisition offer or other matter was in the best interest of the firm.

Q 5. How would you rate B & J’s?
• In 1994, the company’s sales growth slowed and it had suffered a financial loss in the same period, however the company is still considered healthy. In 1999 sales rose 13% to $237 million from $209 million. Even though the company had suffered a loss in profitability in 1994, B & J’s profitability had improved a lot after 1994. in 1999, it had an increased of 29 % profitability as compared to 1998. Translating from the ratios, despite B & J’s increase in sales, the company was struggling to generate enough sales to cover the costs and increasing expenses The low debt-over-assets ratio and total debt to equity ratio proves the company's ability for further investment and/or international expansion • • •

Based on the analysis of the data given, we believe that B&J still has a strong position in the market and the ability to secure long-term future profit

B & J’s Net Sales Growth
Year 1994 1995 1996 1997 1998 1999 Sales ($) 148.8 155.3 167.2 174.2 209.2 237.0 Growth (%) 4.4 7.7 4.2 20.1 13.3

B & J’s Cost of Sales
Year 1994 1995 1996 1997 1998 1999 Cost of Sales ($) 109.8 109.1 115.2 114.3 136.2 145.3 Increase in cost of sales (%) -0.6 5.6 -0.8 19.2 6.7

B & J’s selling, general & administrative expenses
Year 1994 1995 1996 1997 1998 1999 Expenses ($) 36.3 36.4 45.5 53.5 63.9 82.9 Increase in expenses (%) 0.3 25.0 17.6 19.4 29.7

B & J’s Net Income (Profit & Loss)
Year 1994 1995 1996 1997 1998 1999 Net Income ($) (1.9) 5.9 3.9 3.9 6.2 8 Growth in Net Income (%) 210.5 -33.9 0.0 59.0 29.0

B & J’s Gross Margin
Gross margin give a good indication of financial health of the business. Without an adequate gross margin, the business will be unable to pay its operating and other expenses. It is calculated by dividing the business gross profit by net sales.
1999 1997 Gross profit/net sales1998 = gross margin Gross Margin (%) 38.7 34.9 34.4 1996 31.0 1995 29.7 1994 26.2

B & J’s Net Income Margin
An indication of how effective the business is at cost control. The higher the net income margin, the more effective the business is at converting sales into actual profit. NI Margin is calculated by dividing the business NI by net sales
1999 1998 1997 1996 1995 Calculated by dividing3.0 business net income by net the Net 3.4 2.2 2.3 3.8 Income Margin (%) Net income/net sales = net income margin 1994 sales.-1.3

B & J’s Return of Equity (ROE)
ROA shows what the business has earned on its owners’ investment in the business. This ratio is derived by dividing the business net income by total shareholders’ equity. Net income/total shareholders’ equity = ROE
ROE (%) 1999 8.9 1998 6.8 1997 4.5 1996 4.7 1995 7.5 1994 -2.6

B & J’s Total Debt to Equity Ratio
Indicates what proportion of equity and debt that the company is using to finance its assets.
This ratio is calculated by dividing the total debt by total equity. Total debt/total equity= total debt to equity ratio
1999 Debt to equity ratio (%) 18 1998 23 1997 30 1996 38 1995 41 1994 45

B & J’s Debt to Asset Ratio
It measures the percentage of the business’ assets financed by creditors relative to the percentage financed by the shareholers.
This ratio is calculated by dividing the total debts by total assets.

Total Debts/Total Assets =Debt to asset ratio
1999 Debt to Asset ratio (%) 11.1 1998 13.7 1997 17.5 1996 22.8 1995 24.4 1994 26.9

6. Should Morgan support the takeover? • As the representative of the shareholders, Morgan should support the takeover based on the following:– Too much focus on social commitment – Low shareholders value – High operational cost

• At that time, Unilever had offered largest sum of money to acquired B & J’s • Not tempted by large sum of money, both B & J refused to sell that lead to them being sued by the shareholders

Acquisition of B & J’s
• B & J’s was acquired by Unilever in 2000 • How much???for $326 million

Asset Allocation, (2008). Lightbulb press dictionary of financial terms. Retrieved November 13, 2012, from http://financial – dictionary. Free markete conomy (2009). Retrieved November 13 2012 from http://financial-dictionary.

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