Nantucket Nectar Harvard Case Solution & Analysis

Case Analysis :

 The case analysis is based on the following:

·         To remain independent

  • To go as a public limited company.
  • To sell the company

 To remain independent

If Nantucket Nectars remains independents then there may be following benefits and drawbacks:

Nantucket Nectars will not have to face heavy rules and regulations of the securities and exchange company as public companies face.The fulfillment of the regulations may result in additional cost to company,this may be avoided if Nantucket Nectars remains independent.

The process of decision making will be quiet prompt and easy as Nantucket Nectars will not to have meet of thousands of shareholders, which a public company does because Nantucket Nectars has only few shareholders for consultation and approval.

This also minimizes the level of disagreements among shareholders.

Nantucket Nectars will not have to put costs on making annuals reports like public companies,this may result in-house savings.

Nantucket Nectars will not have to follow strict regulation on company audit and following of IAS framework.Nantucket Nectars cannot raise capital in public markets and have to use the bank loans for financing,this may cause gearing issues and risk of bankruptcy.

Nantucket Nectars may remain away from instant and heavy amount of financing which is received by becoming a public company,this finance may then be used for business expansions and diversification.Nantucket Nectars may face governance issues as independent company has limited regulations on governance structure.

To go as a public limited company

If Nantucket Nectars goes as a public limited company then it will receive instant and large amount of investments by public investors. This investment can be used in future for acquisitions, expansions,diversification,product development,research and development etc.

Any future requirements of funds can be fulfilled by share issue or by obtaining loan from public markets.

The investor will trust more on a company listed on stock markets as it has to follow enormous rules and regulations resulting the safeguard of investors interest.

The public company requires a fulflaige audit by an independent audit firm and this may result in the reduction of the level of risk of fraud or error within Nantucket Nectars.

If Nantucket Nectars goes public then it will have to bear heavy costs of fulfilling rules and regulations, making annual reports for shareholders,share issue,listing fees etc.This gives them incentive to devote their efforts toward one goal and raises needed capital.

To sell the company:

The founders who want to sell their business due to the reason they may be be tired of doing the business or they want half or full exist from the business. If an owner of the business wants to liquidate whole of his equity then acquiring other investors will result in lower acquisition price. On the analysis of financial statement of Nantucket Nectars, we have come to know that Nantucket Nectars is under per forming as it has negative cash flows of $36000 in 1996 which was negative $71000.

Although the future cash flows are showing good levels but these all are projection only and seems to be misleading as there was cash in hand of $2000 in 1996 and it was projected as $1446000 in 1997.Itis due to the inflow of subordinated loan of $2094000 that there is a risk that what will happen if company is unable to receive loan and is lender do not agree to lend.

Recommedation/ Conclusion

It is recommended that Nantucket Nectars’ management should sell the company due to following reasons:

  • The sell of Nantucket Nectars will help owners to invest the proceeds to another business for example in IT business due to its growth and profitability.
  • Going public may not be accepted by Mr Mike as he is 55% of the shareholder of the company and may want to realize its investment at this time.

The company’s failure to sell juices through supermarkets has resulted in this situation however, the company has tried but it has failed to acquire shelves space from these supermarkets. In addition,competition with competitors has also strengthened the decision to sell the company.........................

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