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Assess whether Innocent Drinks Ltd should have raised finance by selling a minority of its shares to shareholders, such as Coca-Cola. - Edexcel - A-Level Business - Question 2 - 2017 - Paper 2
Question 2
Assess whether Innocent Drinks Ltd should have raised finance by selling a minority of its shares to shareholders, such as Coca-Cola.
Worked Solution & Example Answer:Assess whether Innocent Drinks Ltd should have raised finance by selling a minority of its shares to shareholders, such as Coca-Cola. - Edexcel - A-Level Business - Question 2 - 2017 - Paper 2
Step 1
Reasons for selling shares
Answer
Innocent Drinks Ltd might consider selling shares to Coca-Cola for several reasons. First, Coca-Cola can provide not only financial support but also valuable advice and expertise that might benefit Innocent Drinks’ operations. As a company with extensive experience, Coca-Cola could help Innocent navigate the competitive landscape and expand into new markets leveraging its well-established distribution network.
Additionally, an influx of capital could allow Innocent Drinks to invest in new product development and marketing, potentially increasing its market reach. Moreover, Coca-Cola's involvement might enhance the brand's recognition and appeal, opening doors to further business opportunities.
Step 2
Reasons against selling shares
Answer
On the other hand, there are significant concerns about selling shares to Coca-Cola. One of the primary issues is the potential loss of control for Innocent Drinks. With Coca-Cola holding a larger share, they may want to influence decision-making, which could lead to conflicts over the strategic direction of the company. This could undermine the original values and ethos that Innocent Drinks was built upon.
Additionally, Coca-Cola may expect a share of profits through dividends, which could limit the funds available for reinvestment back into Innocent Drinks. The association with a large corporation like Coca-Cola might also damage Innocent’s image, creating public relations challenges and possibly alienating existing customers who value the brand's independence.
Step 3
Potential judgment
Answer
Considering the pros and cons, Innocent Drinks should carefully assess the implications of selling shares to Coca-Cola. While the financial support and expertise could facilitate growth, the risks of losing independence and control cannot be overlooked. Ultimately, it may have been wiser for Innocent Drinks to explore alternative financing options to maintain their brand's autonomy and ethos.