Time is a great equalizer.  As time passes we gain perspective.  We look back on things we did, experiences we had, and view them through a different lens.  I don’t have much affinity for mulligans in real life and I don’t wish one in this instance.  However, now I look back at the implications and recognize that a deal, a single deal, could create a paradigm shift for an industry.  To recognize that I was part of it gives me pause.  However, to now recognize the negative implications makes me think; maybe that wasn’t such a good idea.

You will have to forgive me, I was born into the wrong era for my personal value system.  I was born into a era of excess.  Continual stock market movements in the up and right direction.  Real estate valuations which doubled and then doubled again, and then again.  Greed was good.  Millikan, Boesky, Kravis, these were my childhood idols.  You were only as good as the last deal you had done, and if that deal was not mentioned above the crease on the front page of the Wall Street Journal than it wasn’t a real deal and you should not pass go or collect $200.  For a Jewish kid from Utah, those were long odds.  Then along came Ben & Jerry’s.

Ben Cohen and Jerry Greenfield were childhood friends born four days apart in Brooklyn, New York, in 1951.  Twenty-four years later, the duo would take a correspondence course on how to make ice cream.  With an initial investment of $12,000 the iconic brand was launched in Burlington, Vermont in May 1978.  From there the business took off, largely on the backs of the founders personalities and the social mission that under lied the business against the backdrop of the feel good ’80s and go-go ’90s. In 1985, the company went public on the NASDAQ for $13.00.

The social mission of Ben & Jerry’s was largely oriented around sustainable consumption and a symbiotic relationship with its partners and employees.  In effect, it was the first double bottom line company to go public.  Each Ben & Jerry’s was to be made of recycled materials and the company made a clear commitment to reducing solid and dairy waste, recycling and water and energy conservation at the company’s facilities.  Further, it gave 7.5% of pre-tax profits to charitable organizations.   Ben & Jerry’s offered employees generous benefits and a living wage.  Notably, in 1988, the company ceased production of its popular Oreo Mint flavor as it disliked doing business with the owner of the Oreo brand, RJR Nabisco. A  good summary of Ben & Jerry’s social responsibility program can be found here.

The company was not without its issues both inside and out.  Ben & Jerry’s entered into a number of unions that it thought were beneficial to the communities in which they served, but that turned out not to be the case.  “Swinegate” and the “Rainforest fiasco” were but two examples.  However, it might be hard to find fault with the company as these endeavors seemed to undermine the mission of the company due to a lack of due diligence, as opposed to bad intention.  More troubling was the use of toxins by milk suppliers in the Vermont region in which Ben & Jerry’s sourced, running counter to their “all natural” claims.  The company also resisted attempts to unionize subsets of workers and removed a salary cap so it could pay its senior management more money, though the later was necessary to attract professional management to the enterprise.

However, the real problem with Ben & Jerry’s was that it took capital from individual investors.  With that reality came the expectation of a return on their capital contribution.  After flying out of the gate, BJIC lost 66% of its value between 1993 and 1995, with the precipitous decline coming in the second half of 1994,  as a result of flagging sales, an inability to solve mounting distribution challenges and significant asset writedowns at its manufacturing facilities.  The stock languished at those levels for the next 4 years at or below the initial public offering price.

By 1997, investor unrest was mounting and criticism of Ben & Jerry’s operating practice was growing among stockholders.  While losses were mounting, social activism funded by the company and charitable giving continued with little restraint.   In need of a turnaround, Ben & Jerry’s tapped Perry Odak, a proven operational manager, who, ironically, had run, among other things, the Browning and Winchester operations of Fabrique National Corporation, to refocus the business on profitability and realign the business strategy. Odak in turn, hired Gordian Group, LLC (Gordian), my previous employer, to help it evaluate its options.  Despite the market realities, Ben and Jerry had no interest in selling the company.

Over the course of several years, Gordian assisted Ben & Jerry’s board in a variety of transactions, including a sale of the company, an investment in the company, distribution joint ventures and product line expansion.  Ultimately, the company was sold to Unilever in April of 2000, for $38/share or $360 million, twice the initial indications of interest.   To assure that the social mission of Ben & Jerry’s carried on, pursuant to the definitive agreement, Ben & Jerry’s was to operate as an independent entity and its board would remain in place to ensure that it’s social mission was upheld. In addition to the consideration to shareholders, Unilever agreed to contribute $5 million to the Ben & Jerry’s Foundation, create a $5 million fund to help minority-owned businesses and others in poor neighborhoods and distribute $5 million to employees in six months.  In short, Ben & Jerry’s board thought they won — achieving value and liquidity for shareholders and getting its acquiror to buy in to the social mission of the enterprise.  Gordian felt they had won as well, and were awarded Merger & Acquisitions, Middle Market Deal of the Year for 2000.  Ben and Jerry, however felt ill.

Much has been written about what Unilever did to Ben & Jerry’s post close, but that is not the central issue that I want to focus on.  Rather, I’m concern about the precedent it has set for socially based operating companies to take capital from the public or private markets.  In short, there are dozens of really great natural and organic food companies that will never trust the capital markets as a means for liquidity based on what happened to Ben & Jerry’s.  I’m not happy to say, I participated in the deal that created the barrier.

Some days I wish Ben or Jerry were more like Gary Erickson, CEO of Clif Bar.  Erickson said in this article that he would never be tempted to sell the company or take it public.  “They’ll want to do it more about the one bottom line: money,” Erickson said of people who want to buy Clif Bar. “Going public — just shoot me. Having to talk to Wall Street every day?”  However, unlike Clif Bar, a subset of these companies need capital to take themselves to the next level or secure the financial futures of their shareholders.

So for a society which is increasingly becoming green and socially responsible in our consumption patterns, how do we fund enterprises who put their ethos ahead of the profitability? I don’t think that its too much to ask for a socially acceptable solution to emerge. For these companies to compete with better funded multi-nationals, we will have to find a way.

Have any ideas? Inquiring minds want to know.

/bryan

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