It's possible U.S. history says Penn became a Quaker when he was 22 but according to Quaker Oats lore, it's not him. * February 1996: Novell Inc. agrees to sell WordPerfect and several other applications to Canadas Corel Corp. for $197 million, about a quarter of the $1 billion it paid to buy the closely held firm and the QuattroPro spreadsheet program in 1994. Quaker Oats management needs to decide what to do in light of these recent events. ''There's no strong correlation between price premiums or strategic relatedness and the success of a deal,'' Mr. Smith said. The brands distribution channels were as unconventional as its promotions. They gave Triarc a chance, I would submit, because Triarcs presentation convinced the distributors that Snapple once again had an owner that understood the spirit of the brand. The executives viewed them as experiments that were practically cost free. Our distributors buy a couple of hundred thousand cases of anything with the Snapple name on it because people are interested to try our latest thing, explains Weinstein, who now runs the Snapple operation for Cadbury Schweppes. The managerial temperament makes itself known and felt in those small, almost unconscious, actions and decisions. Later, Stuart would be described more as an "internationalist" than an isolationist, and after he retired from Quaker Oats he was appointed as an ambassador to Norway. The price tag to acquire Snapple was $1.7 billion, considered by many to be an astronomical sum. Its also been selling its own brand of trendy drinks under the Mistic name. Distributors and end-customers dis-agreed with . The military needed a cheap way to feed a lot of people, and soldiers across the country were introduced to the idea they could eat their horses' oats. 1. Ben H. Bagdikian. But replicating Gatorades success was more than an objectiveit was a matter of corporate survival. u d ) if the alliance or acquisition pursued. Quaker Oats & Snapple (1998) Disaster: US $1.4 billion But the spirit of Snapple called for another way of speaking and thinking. In such a commoditized business, the company did not deliver on this critical success factor and lost market share. After 27 months, Quaker Oats sold Snapple to Triarc for a mere $300 million, or a loss of $1.6 million for each day that the company owned Snapple. Download the free 31-page State of Innovation report. Did you notice? There's nothing like the comforting taste of nostalgia first thing in the morning, right? When they bought Snapple in 1994, the acquisition made them the third largest beverage company on the continent (behind Coca-Cola and PepsiCo). The Quaker Oats Company's $1.4 billion debacle with Snapple only proves that the well-trod merger road has. Stern was an especially effective spokesperson. Nextel had a strong following from businesses, infrastructure employees, and the transportation and logistics markets, primarily due to the press-and-talk features of its phones. Enter Quaker Oats. Most of those have a ton of added sugar, and even ones that sound like they should be healthy can come with some not-so-great ingredients. Cheerful, zaftig, and blessed with a Noo Yawk accent strong enough to peel paint, Wendy blossomed into a minor celebrity known to her fans as the Snapple Lady. It's easy to do! Despite protracted negotiations with individual distributors and distributor councils, no channel rationalization was achieved. Take Quaker Oats Apple and Cranberries Instant Oatmeal. I had a picture of Wendy on my wall, Weinstein recalls. And on their own, oats are definitely a smart thing to add to your diet. Now that's a mouthful you can simply enjoy. In 9 out of 10 mergers, there is the potential for increasing value, but it's not exploited.''. These offerings provided transportation at shorter distances and resulted in less-predictable, higher-risk cash flow for the Northeast-based railroads. Quaker had Snapples 300 distributors fly into several centralized meetings and proposed to them that they cede Snapples supermarket accounts to Quaker in exchange for the right to distribute Gatorade to the cold channel. Acquisition indigestion is a slang term that describes the difficulties that a company can face implementing a merger or acquisition. Its tempting to say that Triarcs executives understood and embodied the quirky spirit of the Snapple brand in a way that Quakers marketing team never did, and Triarcs executives arent inclined to disagree. Some brands just want to have fun, and from birth Snapple was one of them. Gene Wilder's Willy Wonka & the Chocolate Factory is one of those iconic movies of any childhood even if it did give you nightmares. In March 1997, Snapple had a new ownerand a very uncertain future. systems management. On the other hand, the WHO's International Agency for Research on Cancer says it's possibly carcinogenic, so clearly, more research needs to be done. For good reason. Now that we've learned about multiple ways of diversification, let's return to our example and explore why the Snapple acquisition may have failed. Brand meanings and associations arise as a kind of found consensus between what the marketer wants and what the consumer has use for. She chatted on-air with Oprah Winfrey and David Letterman, made appearances at retail stores, and accepted Snapple drinkers invitations to sleep-overs, bar mitzvahs, and proms. This has been a disaster, said analyst John McMillin of Prudential Securities Inc. in New York. The CEO of Quaker Oats William Smithsburg had his reputation disturbed and he had to fire a good number of employees as he was running out of resources due to decline in sales. They could say they were low-fat, for example, but they couldn't say they helped manage cholesterol. An acquisition is a corporate action in which one company purchases most or all of another company's shares to gain control of that company. That changed after Quaker Oats reached out to the FDA and requested permission to advertise the fact that including oats in a balanced, low-fat diet would help reduce the risk of heart disease. It then compounded the misstep by dropping Wendy the Snapple Lady from the ads and even eliminating her job. Quaker Oats Co. agreed to sell its Snapple juice and iced-tea business for a fraction of what it paid less than three years ago, swallowing a $1.4 billion pretax charge. Timothy Li is a consultant, accountant, and finance manager with an MBA from USC and over 15 years of corporate finance experience. Additionally, differences in systems and processes can make the business combination difficult and often painful right after the merger. It's hard to know if Quaker Oats knew what a revolutionary idea they had when they printed a recipe right on the box. Quaker was backed by its success from the 'Gatorade' drink. Many soft-drink brands flourished in the 1980s serving New York's Yuppies, but only Snapple made the big time. Snapple Is Just the Latest Case Of Mismatched Reach and Grasp, https://www.nytimes.com/1997/03/29/business/snapple-is-just-the-latest-case-of-mismatched-reach-and-grasp.html. Within a span of 20 months, Quaker Oats had to sell off Snapple at a loss of about 20%. Short-distance transportation also involved more personnel hours (thus incurring higher labor costs), and strict government regulation restricted railroad companies' ability to adjust rates charged to shippers and passengers, making post-merger cost-cutting seemingly the only way to impact the bottom line positively. At the time, there was no shortage of upstart brands competing for the dollars of young, health-conscious New Yorkers, but Snapple stood out from the rest by virtue of an endearing artlessness. Released in 1982, it was (via Old School Gamer), a super bizarre answer to a question literally no one had ever asked: "How can I play hide-and-seek without getting up off the couch?" In 1891, consumers could find a piece of china dishware in their oat boxes, and while that's quite a bit different from the toys we usually expect in today's cereal, they can take credit for this idea, too. QUAKER OAT'S snapple: failing to understand the essence of the brand 1. Times staff writer Nancy Rivera Brooks contributed to this report. Ultimately, PepsiCo succeeded in a bid to to acquire Quaker Oats and its crown jewel brand of Gatorade in 2001. And finally, the politicized and turf-protecting culture of Time Warner made realizing anticipated synergies that much more difficult. This explanation, I believe, will provide the framework for understanding Triarcs and Quakers contrasting experiences with Snapple as our story unfolds. "Form 10-Q for the Quarterly Period Ended September 30, 2005. In effect, Triarc let its distributors do its market research. The familiar logo just the Quaker Man's head didn't show up until 1956, and for a short time, he was black-and-white. In a much ballyhooed bid to create an integrated computer and telecommunications behemoth, the AT&T Corporation bought the NCR Corporation for $7.48 billion in 1991 and spent a couple of billion more dollars trying to make it work. Along with ditching the much-despised 32- and 64-ounce bottles, the marketing team sent the distributors a clear message that they were part of the family and not an inefficiency that ought to be eliminated. Connect with the definitive source for global and local news. Within weeks, it was clear from their field reports that young consumers, drawn by the Snapple seal of approval, had tried Elements, liked it, and wanted more. ", University of Pennsylvania-Knowledge@Wharton. ", United Press International. I was always as keen to get the new products to market as Mike and Ken were, says Peltz. The benefits of mergers and acquisitions (M&A) include, among others: If a merger goes well, the value of the new company should appreciate as investors anticipate synergies to be actualized, creating cost savings, and/or increased revenuesfor the new entity. Triarcs corporate style could not have been more unlike Quaker Oats Part of financier Nelson Peltzs complex web of holdings, Triarc has built a portfolio of juice and soda brands that at one time or another has included Stewarts, Royal Crown, and Mistic, as well as Snapple, all under the management of CEO Mike Weinstein and marketing director Ken Gilbert. Although the merging sounded strategically compelling, the two companies could not manage to merger due to cultural variation. Quakers losses from Snapple actually exceeded the $1.4-billion difference between what it paid for Snapple and its sale price. Gatorade -cash cow - potentially could dry up Pre-Morrison, Quaker mainly riding Gatorade under-investing in food brands Morrison comes in and changes PA: Younger manager presidents - oversee individual product lines such as hot cereal, cold cereal, snacks, and domestically sold Gatorade Marketers offer brand ideas to the market, but those ideas dont truly become brands until they are accepted, adopted, and made over afresh as part of the lives of those who use them. But there was a catch. Internal attempts to develop a cat food failed, and the company eventually purchased Puss 'n Boots brand cat food in 1950. . U.S. Securities and Exchange Commission. A version of this article appeared in the. Its not that they didnt know the other terminology. The merger of the legendary Walt Disney and "everything-we-create-kids-adore" Pixar was a match made in cartoon heaven. Take the case of the Quaker Oats-Snapple merger. "AOL Time Warner to Lose Turner, Posts $99 Billion Loss.". Why the Quakers? There's a long-standing belief that he's the founder of Pennsylvania, William Penn. Wall Street was awash in money. To stave off acquisition by one of those larger competitors, Quaker needed to add a second brand that could capture similar economies. - Acquisition of Snapple by Quaker Oats, 1994. Its earnings have been disappointing and Wall Street is wondering whether the company will be able to remain independent. Other breakfast foods were also found to contain the weed-killer chemical, like Cheerios and Lucky Charms. Once a year, they play miniature golf up and down the corridors of Triarcs headquarters in White Plains, New York, each office vying to create a more bizarre hole than the next. After purchasing the sports drink from StokelyVan Camp in 1983, Quaker introduced it into 26 foreign markets, added five new flavors (for a total of eight), and hired basketball great Michael Jordan as a spokesperson. DEAL VALUATION Quaker paid $1.7 billion to acquire Snapple in December 2004. But that was enough. By the time the sale took place, Snapple had revenues of approximately $500 million, down from $700 million at the time that the acquisition took place. Less than three years later, Quaker sold Snapple to Triarc for $300 million, representing a more than 82% loss on its original investment. A disaster gone completely wrong, this is one of the classic cases of a failed marketing strategy. Absolutely, and it's no wonder their foray into gaming only lasted for such a short time. My point here is not to disparage discipline or, indeed, the marketing professionals of Quaker Oats. Investors who thought $14 too low could refuse to tender, vote against the merger, and demand appraisal under 262 of the Delaware Corporation Law. New York Central and Pennsylvania Railroad, Mergers and Acquisitions (M&A): Types, Structures, Valuations, What Is an Acquisition? Snapple's purchase was made just as sales in the category were slowing down and competition from newcomers and large beverage giants such as Pepsico and Coca-Cola was heating up. Problems had been growing throughout the decade, as an increasing number of consumers and businesses began to favor, respectively, driving and trucking, using the newly constructed wide-lane highways. Check out the amazing oat recipes that goes beyond breakfast. Libraries-Penn State University. Shortly after the mega-merger, however, the dot-com bubble burst, which caused a significant reduction in the value of the company's AOL division. Instead, it flowed through the so-called cold channel: small distributors serving hundreds of thousands of lunch counters and delis, which sold single-serving refrigerated beverages consumed on the premises. And yes, he still eats Life Cereal. It went from local to national success and was poised to go international when the founders sold out to Quaker. ''The key to success is the effectiveness of postmerger management. To add insult to injury, PepsiCo acquired Quaker. Sony has pumped as much as $8 billion into its Hollywood adventure since 1989, only to suffer such blockbuster disasters as ''Last Action Hero,'' the gold-plated ouster of a string of highly paid executives and a $3.2 billion write-off in 1994. - Mattel's acquisition of The Learning Company, 1999. 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