Ben & Jerry Homemade - Case Study Example

Introduction Ben & Jerry Homemade is one of the leading distributors of high quality homemade ice cream in United s with a significant presence in the economy of United States. The important point to understand is the fact that historically, Ben & Jerry has been one of the most prominent socially responsible organizations with significant contribution towards the US society. Started as a small shop, it emerged on the scene due to its high quality ice cream being produced in the local area of Berlington, Vermont. Historically, this organization has been one of those organizations which preferred social orientation over the short term profitable aim and objectives. It was because of these management practices that the company became a target for takeover by giant who by spotting the enormous potential of the company put forward takeover offers. This analysis will look into some of the aspects of Ben & Jerry and based on it may suggest to whether the takeover offer be accepted or the company continue to work as an independent company which it has till now remained due to its strong social orientation and market influence. Ben & Jerry’s Mission Statement Almost all modern organizations have their mission statements which announce to the world what the organization is and what it is intending to do. The process of preparing the document of mission statement is what often comes under extensive debate besides the contents of the mission statements and managers do tend to show some emotional attachment to the core values and beliefs of the organization being portrayed into the mission statement. (Mullane, 2002). It is therefore very critical that the organization’s mission statement is clear to most of its employees. If we break down the mission statement of Ben & Jerry into three different parts, we will come across following important information about it. 1) Product: To Make, distribute, and sell the finest quality all natural ice cream and related products in a wide variety of innovative flavors made from Vermont Dairy Products. A close analysis of the above portion of the mission statement suggests that Ben & Jerry have focused on three things as for as the product side is concerned. Their mission was to produce product with high quality and natural product by utilizing the dairy products from Vermont area. It is quite evident that the Ben & Jerry were successful in producing high quality products. It is because of the high quality that they were able to raise their prices in order to support the profitability of the company besides capturing 45% of the market share in super premium ice cream market. Also, the legislature support, designing of equity in such a way that the company remained more of Vermont based truly depict that the organization as a whole has been successful in limiting itself to the use of dairy products from Vermont as they wanted to support those who helped them in the initial periods of Ben & Jerry. The defense mechanism being adopted by the company helped them to keep the best interest of Vermont community intact. 2) Economic: To operate the company on sound financial basis of profitable growth, increasing value for our shareholders, and creating career opportunities and financial rewards for our employees. Ben & Jerry’s pursuit for social causes seems to have been neglecting this part of their mission statement. Firstly, if Ben & Jerry were to operate the company on the sound financial basis of profitable growth than they must have ensured that in pursuit of their social causes, they must not loose the sight of the organization’s bottom line. Though sales were increasing however the overall profitability varied in a similar band thus limiting its ability to generate sustainable higher profits. This is evident from the exhibit 1 which is showing somewhat consistent operating margins. Despite company’s strong social values, it has failed to create value for its shareholders and largely remained low priced as compared to the industry as well as the index. (Exhibit 2). 3) Social: to operate the company in a way that actively recognizes the central role that business plays in the structure of society by initiating innovative ways to improve the quality of life of broad community- local, national, and international. The governance of companies reflects the interests of shareholders but not of other stakeholders. Corporate social responsibility, however one chooses to define the term, implies that a company is responsible for its wider impact on society. (Frankental, 2001). Probably the strongest area of the success for the company is its social behavior and contribution. Ben & Jerry seem to have lived this part of their mission statement in all its life and have significantly contributed towards the local society. By using marketing as a tool for social change, they have been able to put in marketing dollars into contributing towards society thus increasing not only its image in the community but also its profitability too. Overall the company seems to be fulfilling its mission statements besides failing moderately to inculcate its social image into the bottom lines of the organization’s profitability statements. Companies are driven by market forces and competitive pressures. They are judged by markets primarily according to financial indicators – profits, earnings per share, etc. Board members receive incentives based on these performance indicators. There is no overwhelming evidence that a company’s share price is affected by a lack of social responsibility, even when this results in reputational damage. Stock markets are not unduly concerned when a company suffers a reputational crisis, because it is assumed that the crisis will blow over and that the company’s underlying profitability will not be affected. If socially responsible behavior does not feed into a company share price or its profits, what is the incentive for a company’s leadership to pursue socially responsible policies? Corporate social responsibility (CSR) can only take root when it is rewarded by the financial markets which are unfortunately not the case with Ben & Jerry’s. Why company has became a takeover target? The available research on the mergers and takeovers suggest that there are basically three motives behind every takeover. These are synergy motive, the agency motive and hubris. (Berkovitch, 1993). The synergy motive is due to the supposed economic gains which happen due to merging two firms. The agency motives suggest that firms become takeover targets because they can substantially increase the welfare of the acquirer firms’ shareholders. Lastly, hubris hypothesis is based on the assumption that the managers of the acquirer firms may make mistakes while evaluating the takeover of the firm and thus no synergy occurs. The available research also suggests that there are mostly two reasons due to which value creating takeovers take place. One is through which the acquiring firms want to create synergies with the firm to be acquired whereas the second reason may seem to be the systematic disciplining of the target firm’s managers. (Martin, 1991). In non-value maximizing takeovers, the idea is always to generate value through altering the non-value maximizing operating strategies of the firm’s managers. This strategy seems to be working behind the takeover offer of the firm since the highest bidder i.e. Unilever with $ 36 bid aims to maintain key management personnel of the company besides restricting its social commitments and interests. So the idea clearly points towards the fact that the managers of Ben & Jerry engaged itself too much in non-value generating operating activities which has failed to create value for the shareholders despite create a very positive image of the company in general public. As discussed above that the markets generally do not take into account the social activities of the firms and neither they are more concerned about the reputational crisis of the firms therefore only reason behind the company’s being takeover target seems to be too much non-value generating activities. Secondly, if we analyze the historical trends of the financial statements of the Ben & Jerry, we will notice that it has largely remained underpriced despite its strong social orientation. This has made it also a very lucrative target for the investors to hunt for the takeover of the company. Given the quality of the firm’s products, it was also a target for creating synergy for most of the firms. Takeover by the Dreyer’s is certainly a synergy creating transaction whereas Unilever’s offer too seems to be the synergy creating effort however Ben & Jerry seems to have presented this opportunity to its bidders themselves as over the period of time, it has failed to realize the commercial purposes of any entity. Though focus remained on the non-profit social activities however that would have been better suited if Ben & Jerry remained a privately owned company. With its listing, it was compelled to create value for its shareholders whom it probably seems to have failed mainly due to its over-emphasis on the social contribution of businesses in the society. It must not be forgotten that in order to survive, companies must also tend to be profit oriented also. Status of Current Offers There are four offers being made to the Ben & Jerry from four different organizations including two investment houses. The highest offer has been made by Unilever which is at $ 36 per share. A close analysis of this offer suggest that Unilever intends to retain some of the select members of the management of Ben & Jerry whereas the plans are also to integrate the company into Unilever frozen dessert division. Unilever also seems to be restricting the social initiatives of the company also. Considering the widespread sales network throughout United States with higher market capitalization and more penetration into the market, therefore this takeover for Unilever seems to be just one more addition of quality products to its already existing product portfolio. Secondly by merging it with it’s froze desert division, Unilever is clearly indicating that it is no longer interested into keeping the current structure of the company hence if this takeover takes place, there will certainly be an end to the long and cherished history of B&J. Dreyer’s Grand’s offer is the third largest bid to takeover the company however with the current joint venture and the proposed terms of the takeover offer, it is very clear that B&J may be able to keep its historical past intact and continue to contribute towards its social aims. Besides the retention of the management of B&J seems to reduce the agency cost involved in the transaction as the managers from B&J may be more open to this offer because of the fact that their jobs may remain secure. The two other offers are for the complete removal of the current management however they are allowing B&J to continue to work as an independent company however due to lack of expertise in the business, these two takeover efforts do not seem to be more than an effort to diversify the exposure of these two investment firms thus over the period of time, B&J may not prove to be a profitable option for these two investments homes t continue it operating. Though all the offers seems to be on the higher side as compared to the historical stock prices of the company (Exhibit 2) however there seems to be little strategic management in these offers except that of Dreyer’s which can prove a very significant move by the acquiring firm to create strong synergy and value. Recommendations For Henry Morgan, it can be a very tough and challenging task to take any side of whether advocating against the takeover offers or support anyone of them. B&J has a much cherished history and a great image in the general public as for as its social orientation is concerned. For him, there is a double sword problem. On one hand, if takeover is approved, local society will probably loose one of its strongest servers who continue to serve its cause and on the second hand, shareholders whom Henry Morgan is supposed to represent while sitting on the board are loosing money due to non-value creating activities. Though the company has been able to contribute positively towards the societal causes but also succeeded in generating a steady stream of revenue and profits for its shareholders. In order to assess whether Henry Morgan support the present management stance of social orientation or support the takeover offers, we need to analyze whether the company has been able to serve its cause. A closer look at the mission statement suggest strong social orientation of the company and its proposed future path and direction therefore any investor willing to invest in the company must have the knowledge and information about the future outlook and strategic direction of the company therefore that the company has failed to create substantial value for its customers may not seem as extensive as it should have been. The continuous efforts of the company to inculcate more social orientation in it have helped it to achieve substantial degree of market acceptability. Problem is not with the B&J’s social orientation but actual problem is the fact that this orientation seems to be bit over dozed which investors and shareholders may not find easy to swallow. If we analyze the offers, I believe the offer made by the Dreyer’s Grand seems to be more reasonable though it is bit under-priced however it will allow B&J to enjoy the to maintain its original social orientation besides offering lower agency costs to both the firms. Overall, Henry Morgan should continue to support the management’s current efforts and agenda rather than supporting the takeover offers. With bit more professional attitude and better mix of social orientation and commercialism will certainly help B&J to evolve and make a turnaround in the market as it is already enjoying an strong market acceptability as well as a well diversified portfolio of excellent quality products to support its efforts for more social orientation. References: 1) Mullane, John.V. 2002.’ the mission statement is an strategic tool: when used properly, Management Decision Vol.40, no.5, pp 448-455. 2) Frankental, Peter, 2oo1.’ Corporate social responsibility – a PR invention?’ Corporate Communications: An International Journal, Vol.06, no.1, pp 18-23. 3) Martin, Kenneth J,1991,’Corporate Performance, Corporate takeovers , and management turnover”, The Journal of Finance , Vol.56,no.2, pp 671-687 4) Berkovitch, Elazar. 1993.’ Motives for takeovers: empirical evidence’, Journal of Financial & Quantitative analysis, Vol.28, no.3. pp 347-362. Read More