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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 could have considered selling shares to Coca-Cola for several reasons. First, Coca-Cola could provide valuable advice alongside financial support, which may help Innocent Drinks expand its market. The partnership also allows for leveraging Coca-Cola's extensive distribution network, which could facilitate entry into new export markets. Furthermore, selling shares to Coca-Cola would ensure that Richard Reed and other owners retain significant control over business decisions, as they would still own a majority stake.
Step 2
Reasons against selling shares
Answer
On the other hand, there are significant reasons why selling shares may not be the best option. Coca-Cola's involvement might lead to potential conflicts in decision-making; disagreements could arise about the strategic direction of Innocent Drinks. Additionally, selling shares would mean Coca-Cola could expect a share of future profits in the form of dividends, potentially reducing funds available for reinvestment in new machinery or products. Furthermore, aligning with a brand like Coca-Cola could damage Innocent Drinks' image, impacting customer loyalty and potentially alienating its existing customer base.
Step 3
Potential judgement
Answer
Judging whether Innocent Drinks should have sold shares to Coca-Cola involves weighing these factors. Selling shares could have enabled access to essential expertise and funding, critical for growth; however, the loss of control may not have been worth the potential benefits. Ultimately, Innocent Drinks should carefully consider its autonomy, brand identity, and long-term goals before opting to sell shares.