The company’s extremely generous charitable donations of 7.5% of pre-tax earnings and other social gains have had serious impacts on its profits.
Ben & Jerry’s has to find ways to create value for its shareholders.
Takeover Offers
The takeover offers that Ben & Jerry’s currently has on the table are above its current share price of $21, indicating that the company is under valued.
The various asset control charters, legislatures and other defense mechanisms gives the company authority to accept or reject the takeover offers that have been made so far.
See Exhibit 1 for Pros and Cons analysis of the various offers. The criterion that’s important for Ben & Jerry’s to choose from the options are:
- Management autonomy to carry out company’s interests
- Value creation for shareholders
- Offer price to be higher than the current share price of $21
- Change management priorities regarding social activities
- Reorganize management for better asset management
- Some level of social involvement
Quantifying the alternatives based on the above criterion, Unilever seems to have scored the most [See Exhibit 2].
Company Valuation and Share Price
Ben & Jerry’s net income has been on the rise (from 59% to 93%) but the cost-to-sales ratio has decreased from 65% in 1998 to 61% in 1999, accrediting some of the increase in net income to the reduction in cost. Although one can argue that if the company is making profits then why sell it but it’s worthwhile to notice that the working capital has been declining which means reduction in future sales. Company’s total assets have been almost the same ($150M) for the past two years indicating a very slow expansion [See Exhibit 3]. For this reasons it seems to be a good option to sell the company to one of the interested candidates. Getting financing from investors to expand will not be a good move, as this would not change the management priorities and its social interests.
Based on the multiples valuation method, Ben & Jerry’s share price is evaluated to be $33.04 [See Exhibit 4]. The offer price of Unilever is well above the valued price.
Recommendations
Due to the merger announcement of Nestle and Pillsbury and also due to the weak performance of the company, Ben & Jerry’s became a takeover target.
Ben & Jerry’s should opt for Uniliver’s offer of taking over their company as their main proposal is more in line with the Ben & Jerry’s interests and mission.
Management should accept the offer presented by Unilever at a price of $36 per share.
Exhibit 1 - Pros and Cons of Takeover offers
Exhibit 2 – Quantifying the takeover offers
Exhibit 3 – Ben and Jerry’s Financial Performance
Exhibit 4 - Multiples model used to calculate share price
Sources
1 US Securities and Exchange Commission:
http://www.sec.gov/cgi-bin/srch-edgar
2 Investment research site:
http://www.morningstar.com/