Coursework: Finance and Decision Making - Ben & Jerry's Case Study

This case study delves into the financial and strategic challenges faced by Ben & Jerry's Homemade, examining the conflicts between corporate social responsibility and financial performance. The assignment explores the company's mission statement, analyzing its product, economic, and social dimensions and the inherent tensions between them. It investigates the concept of wealth maximization, comparing it to profit maximization, and assesses Ben & Jerry's performance in relation to its mission. The case study further examines the factors contributing to takeover offers, evaluates the company's financial ratios, and analyzes the implications of potential takeover bids. The analysis includes calculations of implied stock prices based on industry valuation ratios and provides insights into takeover defense mechanisms, corporate governance, and the role of independent directors in such scenarios. The assignment concludes by evaluating the use of corporate charter restrictions and differential voting rights as takeover defense strategies, offering a comprehensive overview of the company's financial and strategic challenges.

Running head: FINANCE AND DECISION MAKING
Finance and Decision Making
Name of the Student
Name of the University
Author Note

1FINANCE AND DECISION MAKING
Table of Contents
Answer to Question 1...................................................................................................................2
Answer to Question 2...................................................................................................................2
Answer to Question 3...................................................................................................................3
Answer to Question 4...................................................................................................................4
Answer to Question 5...................................................................................................................4
Answer to Question 6...................................................................................................................6
Answer to Question 7...................................................................................................................6
References....................................................................................................................................7

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Answer to Question 1
The three main dimensions of Ben and Jerry’s mission statement include product,
economic dimension and the social dimension. The product dimension of the statement focussed
on making good quality ice-cream in a wide variety of flavours from Vermont dairy products and
distribute it across places. The economic dimension of the products focussed on continuing the
business in a profitable manner and creating value for the shareholders. They also include
creating new employment and money making opportunities for the employees of the entity. The
social dimension of the statement deals with identifying the role of the business in the
improvement of a society and to enhance the quality of living of the local, national and
international community.
These three dimensions are not always compatible with each other and conflicts tend to
exist between them (Ax and Greve 2017). One of the conflicting circumstances identified in the
corporate policy responses is the raising of the prices by the entity. Even though the company
wanted to make ice-creams for everyone at lower prices, it did not remain feasible after a certain
point of time. As the prices had to be increased, the social objective of providing quality ice
creams for everyone became difficult.
In other instances, the entity had to sacrifice its short term profits for the social gains. An
example of this was the creation of the Chocolate Fudge Brownie, which had to be created to
ensure that the entity could use the blocks of brownies stuck together in its business. However,
creating this product resulted in the entity sacrificing its short term profits and invest more of its
resources in the project. Here, the economic dimension of the products had to be sacrificed for
the social dimension. Hence, it is not always possible for the entity to achieve the objectives of
all the three dimensions constantly.
Answer to Question 2
Wealth maximisation is a concept which is much broader than the usually accepted
concept of profit maximisation. This is because wealth maximisation considers a broad range of
factors like the consumer perspective, impact on the society and the importance of the financial
performance on the business. The purpose of wealth maximisation is to improve the net worth of
the company. This is done by increasing the value of the shares of the company. Some of the
benefits that arise due to the concept of wealth maximisation is that it is based on cash flows and

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not profits. Hence, there is no ambiguity in the calculation of the wealth of the entity. The wealth
created by an entity lasts for a longer period than profits, which are short term in nature. It also
considers the aspects of time value of money and the risk and uncertainty involved in a business.
As the value of the shares tends to get affected by both financial and non-financial aspects of the
business, the decline in the wealth of the entity also means the failure of a business in fulfilling
the expectations of the society (Neubauer 2016).
Answer to Question 3
The first dimension of the mission statement is the product dimension. In this aspect, the
performance of Ben & Jerry’s Homemade can be said to be very good. This is because the main
aims of this dimension were to produce a wide variety of products and distribute it to the
customers. Since its inception, the company has been able to expand its business over many
places and had approximately 170 stores throughout the country. The annual sales of the
company had also gone up to $237 million which suggested an increase in the customer base and
sales of the company. Its flavours also included a range of products and approximately 15
varieties. It also established itself as a premium ice-cream brand in the United States (ESI 2016).
The second dimension of the business is the economic dimension. In this aspect, the
performance of the entity cannot be called as satisfactory. Some of the evidences of the same are
provided in the report of the financial reporter, who suggested the opinion of a majority of the
shareholders. Even though the company is able to conduct sales on an increasing rate and
improve its profits, it is not sufficient. The rate of return for the equity holders is the same and
has gone up to 9% after remaining at 7% for many years. Even though the market share of the
company is as high as 45%, Even though the charitable donations made by the company have
served it well, they have also failed in creating value for it (Hart and Zingales 2016). Therefore,
the company has not been successful in finding new investment opportunities which improved
the wealth creation for the shareholders.
The third dimension of the business is the social dimension. The company has performed
extremely well in this regard. As agreed by the shareholders and outsiders, charitable donations
are a part of the business culture of the entity. The company has donated approximately 7.5% of
the pretax earnings to different social groups and communities. This consciousness was not just

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limited to providing donations. It also remained committed to the social objectives in its
marketing, operational and financial policies.
Answer to Question 4
One of the major factor in the company becoming a major target for takeover is the
increased competition in the industry and the declining performance of the entity. The evidence
of the failing financial performance of the entity is provided in its financial statements. The
Return on Assets (ROA) of the company has been fluctuating on a regular basis. In F.Y. 1999,
the ROA went down to 3.5%. The expenditure incurred by the business has gone significantly up
from $63.9 in 1998 to $82.9 in 1999. Although the additional sales can be cited as a reason for
the increase, the EBIT of the company has come down in 1999. This is also the case with the
operating margin of the entity. Considering the 45% market share and the reputation of the
entity, an ROE of 9% can be considered to be very low. The Price/ Earnings of Dreyer’s Grand
and Eskimo Pie are much higher than that of Ben & Jerry’s. The stock price of the company has
also mostly stagnated for many years. There has not been much change in the overall stock levels
of the company. Due to this declining financial performance and the good reputation of the
company, taking over the company resulted in benefits for the entity.
I think the current set of shareholders will support the takeover options available to the
entity. This is because they will result in an improvement in the financial performance of the
entity and restrict the numerous social projects undertaken by it. They will also change the
current management team in place and replace it with a new team. Due to the renewed
opportunity available in generating additional value to the stakeholders, it is likely that the
takeover option would be accepted by the stakeholders (Boyson, Gantchev and Shivdasani
2017).
Answer to Question 5
Price to Earnings Valuation Ratio
Company Price/Earnings Price/Book
Dreyers Grand 47.2 7.8
Eskimo Pie 30.7 1.1

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TCBY Enterprise 12.5 1.2
Yocream
Enterprises
9.4 1.8
Ben & Jerry's 19.8 1.8
Average P/E Ratio 23.92 2.74
EPS 1.06 -
BVPS - 11.82
Share Price 25.36 32.40
Book Value Per Share
Shareholder's
Equity
89,400,0
00
Outstanding
Shares
7,561,9
89
BVPS 11.82
In the given case, the shareholder’s equity of Ben & Jerry’s Homemade has been found to
be $89400000. The outstanding shares owned by the entity are stated to be 7561989. Dividing
the shareholder’s equity with the total outstanding shares of the entity, the Book Value per Share
of the entity has been calculated to be $11.82.
In order to calculate the implied stock prices of the entity on the basis of the Earnings per
Share, the average P/E ratio of the industry is multiplied with the EPS of Ben & Jerry’s. The
average P/E ratio is calculated to be $23.92. This, when multiplied with the EPS of 1.06 gives
the share price of the company at 25.36. Similarly, the average P/E ratio of the industry on the
basis of the price/book values of the entities is calculated to be 2.74. This, when multiplied with
the Book Value per Share of 11.82, gives the implied share price of 32.40.
The offers placed by Dreyer’s Grand and Meadowbrook Lane are not justifiable in terms
of the book value of the shares. This is because the price of the shares of 32.40 is higher than the

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offers suggested by both the companies. The offer of Unilever can be accepted in this regard. In
case of the current market value of the shares of Ben & Jerry’s, the offers of all the three
companies can be accepted as they are higher than the share price of $25.36 of the company.
Answer to Question 6
As an independent director, I would support one of the takeover offers proposed by the
outsiders. This is because of the inability of the company in maintaining a sustained level of
profits or growth in its business. While the culture and the social obligations of the entity are
appreciable, they are not sufficient for the business to thrive in the long run or to generate
profitable returns to the shareholders. As the current policies of the management are not
satisfactory in terms of providing the requisite returns, the takeover is a more profitable option
for the entity. As all of the takeover options allow the company to continue its social activities,
the reputation of the company is not at stake. However, it needs to prioritise the various social
projects and select the more important ones. The takeover proposals also result in the value
generation for shareholders. Hence, they should be accepted by the entity for the overall benefit
of the entity (Li 2017).
Answer to Question 7
One of the takeover defence mechanisms used by the entity is the corporate charter
restrictions. According to these restrictions, the appointment of the Board of Directors requires
the approval of the two-thirds of the shareholders. The fulfilling of a vacancy in the Board of
Directors requires the approval of the two-thirds of the current Board of Directors. Around 70%
of the common stock of the entity is owned by both Ben and Jerry. Another important defence
mechanism implemented by the entity is the Differential voting rights. In this aspect, the most
prominent form of stock which caused the discrimination in the voting rights is the class A
preferred stock, held exclusively by Ben and Jerry. This stock restricted the voting rights of the
other shareholders in important business decisions like mergers and tender offers. The legislature
amendment passed in 1998 caused the Vermont Legislature to allow companies to give more
prominence to the economy in which the business was operating. These measures allowed Ben
and Jerry to undertake the social projects at an increasing rate to benefit the community of
Vermont.

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I do not support the use of such strategies because they dilute the powers of the
stakeholders and give undue benefits to the Board members; especially the founders. These are
unfair means which do not give sufficient priority to the rights and the priorities of the
shareholders (Shin 2016).

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References
Ax, C. and Greve, J., 2017. Adoption of management accounting innovations: Organizational
culture compatibility and perceived outcomes. Management Accounting Research, 34, pp.59-74.
Boyson, N.M., Gantchev, N. and Shivdasani, A., 2017. Activism mergers. Journal of Financial
Economics, 126(1), pp.54-73.
ESI, M.C., 2016. A theoretical analysis of the mission statement based on the axiological
approach. Management Dynamics in the Knowledge Economy, 4(4), pp.553-570.
Hart, O. and Zingales, L., 2016, October. Should a company pursue shareholder value.
In Conference Economics of Social Sector Organizations, The University of Chicago Booth
School of Business https://www. chicagobooth. edu/~/media/a4c1c6db9a-
2648a38ea2db7205201450. pdf, dostęp (Vol. 12, p. 2018).
Li, K., 2017. Mergers and acquisitions and corporate innovation (No. 789). ADBI Working
Paper Series.
Neubauer, K.A., 2016. Benefit corporations: Providing a new shield for corporations with ideals
beyond profits. J. Bus. & Tech. L., 11, p.109.
Shin, S.P.S., 2016. Takeover defenses in the era of shareholder activism. Available at SSRN
2842695.