Ben & Jerry’s Homemade Inc. Case Study Case Summary This case examines issues of asset control for Ben & Jerry’s Homemade, Inc., in light of the outstanding takeover offers by Chartwell Investments, Dreyer‘s Grand, Unilever, and Meadowbrook Lane Capital in January 2000. The case requires a discussion of fundamental firm objectives and the implications of a non-traditional corporate orientation; one needs to review the development of Ben & Jerry's strong social consciousness and the takeover defence mechanisms that maintain management's control on company assets. One is required to estimate the economic cost of its social agenda, and evaluate the implications of takeover defence strategies. Ultimately, we have to take a position on whether Ben & Jerry's should continue to independently pursue its social agenda or accept one of the attractive takeover offers and accept a shift toward greater profit orientation. Company Overview Ben & Jerry's Homemade, Inc., the Vermont-based manufacturer of ice cream, frozen yoghurt and sorbet, was founded in 1978, with a $12,000 investment ($4,000 of which was borrowed). It soon became popular for its innovative flavours, made from fresh Vermont milk and cream. The company currently distributes ice cream, low fat ice cream, frozen yoghurt, sorbet and novelty products nationwide as well as in selected foreign countries in supermarkets, grocery stores, convenience stores, franchised Ben & Jerry's scoop shops, restaurants and other venues. Objective Product: "To make, distribute and sell the finest quality all natural ice cream and related products in a wide variety of innovative flavours made from Vermont dairy products." 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 our employees." 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 a broad community - local, national, and international." Strengths Reputation for quality The high quality of the product is certainly a crucial factor for the success

of the proposed strategy. The stress on the genuine origin of the ingredients and the company’s name "Homemade" creates and nourishes this impression in the eyes of the customer. Social Marketing The founders beliefs in social responsibility has not only earned them the brand loyalty of the socially aware `baby-boomer’ generation, it also has saved the company a lot of money by providing free marketing through media coverage of social events4. Employee satisfaction The company’s devotion to employee satisfaction is one of the causes for the company’s low employee turnover rate of 12%. The low turnover rate has impact on learning effects, training costs, and employee commitment. Low Gearing ratio The low ratio of debts over total assets of 12% in 1999 gives B&J credibility, which is a good foundation for further investments and expansion

Case Introduction Ø Company is not only and industrial leader but also commands an important position in a variety of social causes Ø Increased competitive pressures and declining financial performance has triggered a number of takeover offers Ø Cofounders Ben Cohen & Jerry Greenfield know that the company’s social orientation requires corporate independence Ø But Chief Executive Perry Odak feels that Ben & Jerry’s shareholders would be best served by selling out to the highest bidder Ø Required to answer the following : • What is the economic cost of social contribution • What are the implications of takeover defence strategies • Whether B&J should continue to independently pursue its social agenda or accept one of the attractive takeover offers and shift toward greater profit orientation. Ben & Jerry’s Social Consciousness Ø Since 1985 the company has donated 7.5% of its pre-tax earnings to various social foundations In Million $ 1999 1998 1997 1996 1995 1994 Pre Tax Earnings 8.9 9.1 6.4 6.4 9.8 2.8 Charity contribution 0.668 0.683 0.48 0.48 0.735 0.21 Ø The company supports causes such as Greenpeace International and Vietnam Veterans

Ø Expresses Customer Appreciation with an annual free cone day at all of its scoop shops Ø 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 Ø 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 Ø 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 Asset Control Strict Asset Controls by the board was preserved by the following factors Ø Corporate Charter Restrictions Ø Differential Voting Rights Ø Vermont Legislature The Offers: Ø 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 endeavour Ø 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 & Endeavours Ø 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 & Endeavours Ø Chartwell • Minority Interest • Install new management team • Allow B&J to operate as an independent company Looking at each offer individually:

Ø Dreyer’s Grand – This offer does not lead to shareholders wealth maximisation but preserves the management philosophy. From the perspective of B&J Management it is the best offer. The management functions as before after the takeover and can pursue its policies within the ambit of societal considerations. As a company Dreyer’s is itself extremely socially conscious and contribute in a variety of ways. Going ahead with this deal would probably only accentuate B&J’s social drive. However from the shareholders perspective the offer is much less attractive that other offers which stand higher than $31 per share. Also the takeover would infuse more stock into the company and bring the debt: equity ratio further down. Ø Unilever This offer leads to shareholders wealth maximisation but disturbs the management philosophy. From the management perspective the takeover poses a threat over the retention of B&J’s management philosophy. Unilever, a profit oriented organisation may not encourage the philanthropy that is such an integral part of B&J’s activities. However the select B&J management might be able to influence policies to a certain extent. From the shareholders’ perspective it leads to maximum wealth as it the best offer at $36 per share in cash. This offer gives a premium of $15 per share to the shareholders and is their best case scenario. Ø Meadowbrook Lane This offer does not lead to shareholders wealth maximisation and disturbs the management philosophy as well From the perspective of a B&J management it completely dissolves the existing structure to give way for a new structure closely controlled by Meadowbrook Lane. The proud management philosophies will be completely disregarded which is not acceptable to B&J founders. From the shareholders’ perspective also it is a suboptimal offer at $32 per share when Unilever is offering a premium of another $4 per share. Ø Chartwell

This offer too does not lead to shareholders wealth maximisation and disturbs the management philosophy as well Similar to the above offer this bid is out of consideration set since it is not favourable to either agency – Management and shareholders Therefore the main area of conflict is between the offers made by Dreyers’ and Unilever. One upholds the management interest at the cost of shareholder wealth maximisation while the other compromises on management philosophies but leads to maximum gain for shareholders. Taking up each question at a time ü What is the economic cost of social contribution Since 1985 the company has donated 7.5% of its pre-tax earnings to various social foundations In Million $ 1999 1998 1997 1996 1995 1994 Pre Tax Earnings 8.9 9.1 6.4 6.4 9.8 2.8 Charity contribution 0.668 0.683 0.48 0.48 0.735 0.21 Apart from this other social contribution expenditures in the form of labour time of staff donated for volunteering, marketing initiatives and association for other causes also entail some cost. However to arrive at the economic cost one has to set off gains from such contribution against the cost. For example: • The tax benefit of deducting such contributions from pre tax earnings. If effective tax rate is around 55% then 7.5% contribution leads to tax saving upto the extent of 4.125% • Social campaigns also serve as marketing initiatives and therefore costs have to be apportioned accordingly and cash flows resulting from these brand building initiatives need to be factored in • Taking the pig farmer and industrial waste example, $10000 to a pig farmer is worth it because it saves the company from spending on expensive water treatment plants to take care of the waste. After considering the above examples and many more one can conclude that the actual economic cost of social contribution is much less than its absolute value. ü What are the implications of takeover defence strategies Even though B&J is the market leader its financial position has been disturbingly very stagnant over the last few years. Under the pressure of competition USP’s such Social Consciousness is also crumbling at financial health is deteriorating. Even though the company is closely held and guided by the management philosophy of giving back to the society,

the erosion of shareholder’s wealth cannot be ignored. Takeover Defence strategies might uphold the company’s social objective but severely compromises on the other two equally important objectives – Product & Economic. Shareholders’ are the most important stakeholders of B&J and therefore the takeover option should be explored openly and in an unbiased manner. Because the board should realize that the ultimate aim of any business id shareholder’s wealth maximisation. ü Whether B&J should continue to independently pursue its social agenda or accept one of the attractive takeover offers and shift toward greater profit orientation. Now in answering this question one has to realize the agency conflict in this decision between shareholders and management. The analysis of different offers revealed that it is essentially a choice between Dreyers’ and Unilever. This implies that the company cannot and should not bypass the takeover. The need of the hour is to divert the company onto a profitable track and revive its financial health. Unilevers’ offer seems to be better than the rest if only some clarifications for retaining at least some of the existing management philosophies are made. The social aspect is very integral and important for the B&J brand and is therefore economically wrong to rip apart this essence of the company. Some thrust and pushing will be required in this direction. However the need of the hour is to accept change, accept the most attractive bid and relaunch the company on profitable tracks.