In 1993 Quaker paid $1.7 billion for Snapple, in just five years Quaker sold Snapple to Triarc Beverages for just $300 million, a loss of 1.4 billion dollars. Horizontal integration is the acquisition, merger, or expansion of a business that increases the market share in its existing industry. "Statement of the Department of Justice Antitrust Division on the Closing of the Investigation of Sprint Corporation's Acquisition of Nextel Communications Inc.", U.S. Securities and Exchange Commission. Takeover talk continued to buzz around the company with suitors ranging from Nestle, PepsiCo and Danone mentioned. Due Diligence Case Study 6. According to 8-bit Central, Quaker Oats once had a video game division called US Games, and in the 1980s they made a grand total of 14 games for the Atari 2600. 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. It became a part of pop culture and television history in spite of the naysayers. Stern took his revenge by subjecting Quaker to months of on-air diatribes that urged listeners to stay away from Crapple.. On the day the merger was announced formally, both the companies registered a fall in share prices. 2 In 1998 The Quaker Oats Company owned four other brands that led their respective categories: Gatorade thirst . - Merger of AOL and Time Warner, 2001. We started out loving the brand the first day, says Gilbert. Just as it had done with Gatorade, Quaker introduced Snapple in larger, more profitable sizes: in 32- and 64-ounce bottles. They could say they were low-fat, for example, but they couldn't say they helped manage cholesterol. GE bought Kidder for $600 million in 1986, but had invested an additional $800 million in the firm between the purchase and the sale. In 2018, the Environmental Working Group the same group that releases the Dirty Dozen list tested multiple breakfast foods for the presence of glyphosate. Give some thought as well to its soul. What did Disney actually lose from its Florida battle with DeSantis? So that cannister of Quaker Oats is going to be a great choice, but less great are those instant packets that come in all kinds of flavors. Different systems and processes, dilution of a company's brand, overestimation of synergies, and a lack of understanding of the target firm's business can all occur, destroying shareholder value and decreasing the company's stock price after the transaction. New York Central and Pennsylvania Railroad, Mergers and Acquisitions (M&A): Types, Structures, Valuations, What Is an Acquisition? Matsushita couldn't make the prim and proper Japanese corporate culture work with the Joe Hollywood culture of MCA.''. Quaker said Snapple just didnt work out as planned. Other acquisitions that went sour include: *. It then compounded the misstep by dropping Wendy the Snapple Lady from the ads and even eliminating her job. 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. So what? All this led to a loss in performance for Quacker oatas a company resulting in a takeover by Pepsico in December 2000 in a $13. From their 1994 peak, sales declined every year, plunging to $ 440 million in 1997. D) none of these above are correct. Ari Emanuel lets his AI alter ego open Endeavors earnings call, Sam Bankman-Fried increasingly isolated as another associate takes a plea deal. He decided on packaging his oats in the round, colorful containers we still see today. Quaker Oats Co. is floundering in a sea of iced tea and fruit juices that cost it a fortune. But a marketing professional would probably explain the improved fit in terms of distribution economies or manufacturing synergies. In fact, chances are pretty good that you probably have one of those distinctive, round cartons in your cupboards right now maybe even a few empty ones tucked into a closet for a future craft project. 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. Part of it was selfishnesswe liked the stuff so much we wanted to get it into our offices. The. In 1993, Quaker bought Snapple for almost USD 1.7 billion. 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. But in true Triarc fashion, no one asked a consultant. 1. According to NewsDay, John Gilchrist had dabbled in acting before settling into a career in media sales. A Pyrrhic victory is a success that comes at the expense of great losses or costs, such as winning a hostile takeover bid or an expensive lawsuit. In most corporations, brand marketing sounds like a form of warfare. It identifies the three major reasons for the failure as distribution problems, stagnant industries, and rival wars. But the spirit of Snapple called for another way of speaking and thinking. AOL missed out on these and other opportunities, such as the emergence of higher-bandwidth connections, due to financial constraints within the company. Investors who thought $14 too low could refuse to tender, vote against the merger, and demand appraisal under 262 of the Delaware Corporation Law. Quaker Oats only owned Snapple for 27 months, selling it for $300 million after making a $1.7 billion investment in the drinks company. 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. Proclaiming the magic is back, the marketing team convened a meeting of the distributors. Snapple also posted a $160-million operating loss for 1995 and 1996 combined, which means Quakers total losses from Snapple probably approach $2 billion. ''A lot of the disasters occur because the due diligence is focused on legal and financial considerations, as opposed to cultural ones,'' said Jacalyn Sherriton, president of Corporate Management Developers Inc., a post-merger consulting firm. Cadbury paid $1.45 billion for Snapple and a number of other Triarc brands, including Royal Crown, Mistic, and Stewarts. Peltz hired Weinstein and Gilbert for their impeccable professional credentials, and they could have used marketing-speak if they had wanted to. The Willy Wonka line of candy was launched alongside the movie, but there were difficulties. That has led to widening speculation that Smithburgs days as Quakers chief executive are numbered. Check out the amazing oat recipes that goes beyond breakfast. In 1994, grocery store legend Quaker Oats purchased the new kid on the block, Snapple, for $1.7 billion. Quaker Oats paid $1.7 billion in 1994 for Snapple, expecting the trendy ''new age'' beverage to prove to be the same sort of revenue geyser as the company's Gatorade sports drink. The Quaker Oats has acquired in 2 different US states. "Form 8-K - March 27, 1997. Those challenges got Henry Crowell one of the original founders of Quaker Oats thinking (via The Gazette). Take Sneak'n Peek. This has been a disaster, said analyst John McMillin of Prudential Securities Inc. in New York. The gods sent Quaker Oats Co. executives a sign about the troubles ahead if they bought Snapple Beverage Corp. On Oct. 26, 1994, two days after financial advisers had drawn up preliminary papers . CHICAGO (AP) _ Quaker Oats Co., which paid $1.7 billion to buy the Snapple beverage business in 1994 and has been disappointed with its performance since, today reached agreement to sell the New Age drink line for $300 million to Triarc Cos. Inc. Quaker said the sale would reduce pre-tax profits by $1.4 billion, resulting in a loss. 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. The market response to the successive changes in tone at Snapple highlights a process that my Harvard Business School colleague Susan Fournier calls the co-construction of meaning. Consumers did just as much as Arnie Greenberg or the Triarc team to form Snapples brand identity. Several changes in management, including hiring the executive who turned Poland Spring water into a national brand, did nothing to reverse the trend. According to CNN, the move changed the way we advertise the health claims on food, and the change came in spite of protests from some groups claiming consumers would be mislead into thinking certain foods were "magic" foods. It's the breakfast food of the health-conscious today, and that's in large part due to some official FDA claims Quaker Oats made possible for everyone. If it doesnt work, then the very worst that can happen is that you end up with a little excess inventory that you have to discount. SBC was founded by Leonard March, Hyman Golden and Arnold Greenburg in . Quaker & Snapple. But competition in the new age category increased, even as sales slowed. Additionally, differences in systems and processes can make the business combination difficult and often painful right after the merger. But probably Quakers worst move was to dump Limbaugh and Stern. The combined company is intended to be better than both individual companies due to an expected reduction of financial risks, diversification of products and services, and a larger market share, for example. * 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' decision to sell its Snapple Beverages unit for an enormous $1.4-billion loss is one of many acquisitions that went bad for buyers. If wed had a very structured process, forms to fill out, analyses to do, wed have seen the risks, and wed never have moved. The Quaker Oats Company's $1.4 billion debacle with Snapple only proves that the well-trod merger road has been paved with unrealized synergies and executive hubris, experts in mergers and acquisitions say. If Snapple was about play, Gatorade was about sportabout playing to win. Cultural clashes and turf wars can prevent post-integration plans from being properly executed. Many soft-drink brands flourished in the 1980s serving New York's Yuppies, but only Snapple made the big time. A consultant would probably have cautioned against the launch, arguing that Elements slick New Age preciousness would sit uncomfortably under the Snapple logo. A vertical merger is the merger of two or more companies that provide different supply chain functions for a common good or service. Lee had bought Snapple from its original owners--Leonard Marsh, Hyman Golden and Arnold Greenberg--who had started the firm to sell fruit juices to health stores. The QO Ordnance Company was a subsidiary of Quaker Oats, and they oversaw ammunition plants in Nebraska. In March 1997, Snapple had a new ownerand a very uncertain future. Snapple's sales grew from $80 million in 1989 to $231 million in 1992 and $516 million in 1993. There was no such mismatch between Gatorade and Quaker. You've seen the Life Cereal commercials where we learn "Mikey likes it." There's a heated debate going in the scientific community about just how dangerous glyphosate is. The game featured a house with a yard and three rooms, and a total of 20 different places you could pick to hide. The partnership didn't last, and the LA Times called it "one of the worst flops in corporate-merger history." Timothy Li is a consultant, accountant, and finance manager with an MBA from USC and over 15 years of corporate finance experience. Sprint Nextel's managers and employees diverted attention and resources toward attempts at making the combination work at a time of operational and competitive challenges. Its the most fun part of the business. Quaker was backed by its success from the 'Gatorade' drink. The larger bottles were suitable for Gatorade because people tended to drink it during or after team practice or other exercise, when they were especially thirsty and needed to be rehydrated. They had been told to come up with something completely different for the cereal, and they were given a stack of pitched ads representing everything Quaker Oats didn't want. I knew Mike and Ken would make mistakes, Peltz says. Just a little over two years later, they sold Snapple for only $300 million dollars, essentially, taking a $1.4 billion loss on Snapple. 1Prince, Greg, "Come Together," Beverage World, December 1995, p. 50-54. The company hired film director Spike Lee for advertising and gave away samples at Little League games and on city street corners. Quaker Oats' management thought it could leverage its relationships with supermarkets and large retailers; however, about half of Snapple's sales came from smaller channels, such as convenience stores, gas stations, and related independent distributors. The oatmeal king is in good company when it comes to hailing an acquisition as a quick and brilliant way to increase earnings, only to see it collapse amid red ink and clashing corporate cultures. Wonka Bars came a few years later, and Quaker Oats sold that division to Nestle in 1988. Then revive the funky packaging, adventurous flavors, and anything-goes attitude that first made the brand soar. DEAL VALUATION Quaker paid $1.7 billion to acquire Snapple in December 2004. "How Snapple Got Its Juice Back. 1. Quaker Oats On November 1, 1994, Quaker Oats acquired Snapple for approximately $1.9 billion, becoming the third largest pro-ducer of soft drinks in the United States. The dollar value of mergers and acquisitions soared to $659 billion in 1996, nearly double the number in 1994. Instead, we were able to make a fast decision, move quickly, capture an early success, get the distribution channel excited again, and get the retailers back to believing in the brand. Indeed, Snapple responded almost immediately to Triarcs management. Sounds great, right? Snapple's previously popular advertisements became diluted with inappropriate marketing signals to customers. Patrick specialty dyes and chemicals businesses. And yes, he still eats Life Cereal. Reading more about the merger between Quaker Oats and Snapple and how it failed to succeed, it became clear that Quaker Oats conducted an inadequate due diligence process and that the main reason for this was due to managerial hubris within the company. 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. Sort of. Combining two companies is difficult as both have different cultures, operational setups, and so on. He got a complete overhaul in the 1970s, to a blue-and-white logo that, frankly, is very 70s. Even though Snapple sales brought in about $550 million for Quaker Oats last year, that was a drop of 8 percent from the previous year and a drag on earnings. Now that's a mouthful you can simply enjoy. Rolm gained market share and lost money, prompting I.B.M. The only fixed plan we had was to limit the cost of failure. Rather than pursue large schemes that required making investments well in advance of returns, Triarcs marketers put little ideas into play and watched what happened. That got people noticing his oats but making them? Investopedia requires writers to use primary sources to support their work. 2 In addition to overpaying,. In a battle between David and Goliath, the smart money is almost always on the giant. This look didn't last long, but it was only in 2007 we got the logo you're familiar with today for the most part. "Mikey" was almost "Tim", and while we'll never know if that would have seen the same success, we do know the urban legends about little Mikey's fate just aren't true. Operating from the back of his parents pickle store in Queens, Arnie Greenberg and his friends Leonard Marsh and Hyman Golden started selling a fresh apple juice called Snapple across New York City in the late 1970s. The Quaker Oats Company, founded in 1891<br><br>William D. Smithburg appointment as CEO in 1979<br> 4. Download the free 31-page State of Innovation report. I was always as keen to get the new products to market as Mike and Ken were, says Peltz. Our favorite answer is the Quaker-Snapple fiasco joins such ill-fated business marriages as AT&T; Corp. and computer maker NCR and General Electric Co. and defunct brokerage house Kidder, Peabody & Co. And finally, the politicized and turf-protecting culture of Time Warner made realizing anticipated synergies that much more difficult. Kids could watch the "dinosaur eggs" in their oatmeal hatch into little candy pieces, and according to Ideas To Go, the firm who acted as a consultant, they were a massive hit and ended up doubling their project sales goals. Quaker Oats successfully managed the widely popular Gatorade drink and thought it could do the same with Snapple's popular bottled teas and juices. By the time Triarc came on the scene, they had virtually given up on the brand and were putting their energies into other companies products. Quaker bought Snapple from a group led by Thomas H. Lee Co., a Boston investment firm that reaped a remarkable profit of more than $800 million by selling out. The idea took shape in Weinsteins office. Smithburg, who received no bonus over his $872,506 salary last year, declined to comment. Other problems included poor foresight and long-term planning on behalf of both companies' management and boards, overly optimistic expectations for positive changes after the merger, culture clash, territorialism, and poor execution of plans to integrate the companies' differing processes and systems. Ever wonder why it's not Charlie and the Chocolate Factory, like the book? Within a span of 20 months, Quaker Oats had to sell off Snapple at a loss of about 20%. Now, how about a trip down memory lane? To Quaker, new products were seen as a risk. Technological dynamics of the wireless and Internet connections required smooth integration between the two businesses and excellent execution amid fast change. Below, we look at some the worst mergers and acquisitions undertaken by large corporations, and how the good times went bad. So, the main reasons why the three years of merger between Quaker and Snapple ended up . Acquisition indigestion is a slang term that describes the difficulties that a company can face implementing a merger or acquisition. Connect with the definitive source for global and local news. In its first week in charge of the brand, Triarc used a product launch to signal that the new regime understood what had made Snapple a hit in the first place. By the time the divestiture took place, Snapple had revenues of approximately $500 million, down from $700 million at the time that the acquisition took place. Sprint saw stiff competitive pressures from AT&T (which acquired Cingular), Verizon (VZ), and Apple's (AAPL) wildly popular iPhone. 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. new product development. Part of the fun for the Triarc team was using themselves as a test market. Penn Central presents a classic case of cost-cutting as "the only way out" in a constrained industry, but this was not the only factor contributing to its demise. In this case, Quaker Oats was able to recoup $250 million in capital gains taxes it paid on prior deals, thanks to losses from the Snapple acquisition. In fact, 31 of the 45 samples of oats tested were deemed to be below their safety criteria, and when they went back and tested more samples of both Quaker Oats and Cheerios, they found that all but two (of 28) samples were deemed "harmful.". According to Tim Clark who inspired his father to write the "Three Brothers" commercial the idea of a "slice-of-life commercial was nothing short of career suicide at the time (via Forbes). If management cannot find a clear path in uniting both companies then an M&A will fail. Its also been selling its own brand of trendy drinks under the Mistic name. Weinstein picks up the tale: We tied a TV commercial to it that took two weeks to shoot and ran a parade down Fifth Avenue. James F. Peltz covered nearly every aspect of national business news including corporate America, Wall Street and global economic matters for more than 30 years in Los Angeles and New York. The acquiring management also fumbled on Snapple's advertising, and the differing cultures translated into a disastrous marketing campaign for Snapple that was championed by managers not attuned to its branding sensitivities. Another element of Quakers Snapple strategy came straight out of the Gatorade playbook. They've gone the way of the dodo, but you can still find Dinosaur Eggs. a) the accounts payable. Advertising 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. Even now, mere mention of Quaker Oats acquisition of Snapple causes veteran deal makers to shudder. Additionally, AOL executives realized that their know-how in the Internet sector did not translate to capabilities in running a media conglomerate with 90,000 employees. Of course, the resultant declines in service only exacerbated the loss of customers. There are two different kinds of oatmeal: instant, and the kind that takes next to forever to cook. He got a color treatment in 1957, and if the iconic drawing looks a little familiar, there's a good reason for that. Further, a macroeconomic downturn led customers to expect more from their dollars. ", U.S. Securities and Exchange Commission. The brands distribution channels were as unconventional as its promotions. 4 billion write-off and sold the company it purchased 29 months before for $300 million. Major transactions seem to hit the . Closing one of the worst flops in corporate-merger history, Quaker Oats Co. agreed Thursday to sell Snapple Beverage Corp. to Triarc Cos. for $300 million, only 27 months after Quaker spent $1.7 billion to buy the maker of trendy drinks. Anyone can read what you share. ", University of Pennsylvania-Knowledge@Wharton. The reasoning was twofold. In 1993, Quaker paid $1.7 billion for the Snapple brand, outbidding Coca-Cola, among other interested parties. In such a commoditized business, the company did not deliver on this critical success factor and lost market share. ChatGPT who? Evaluation and control are pervasive in organizations today, and their importance will increase in the future because of the growing significance of all except: technology for information processing. While their efforts should be recognized, it does not do justice to the acquiring group's investors if the deal ultimately does not make sense and/or management pays an excessive acquisition price beyond the expected benefits of the transaction. We had no game plan to assure Snapples recovery, Peltz says. Brands thrive when theres a close fit between process and corporate temperament. 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. In 1997, Quaker sold Snapple to Triarc Beverages for $300 million, a price most observers found generous. Quakers losses from Snapple actually exceeded the $1.4-billion difference between what it paid for Snapple and its sale price. The confidence was easily understood: Quaker had an impressive record in beverage marketing, having developed Gatorade into a powerhouse national brand by skillfully executing a plan drawn straight from the marketing textbooks. Until Quaker Oats possessed Snapple, it caused them a loss of $1.6 million on a daily basis. You know that if you come up with an idea, its at least going to see the light of day.. It's comfort food to the max, and that might have to do with the smiling, friendly-looking man on the logo. As it happened, though, Quakers very risk aversion turned out to be the greatest risk of all. King University. Column: 15 minutes of fame flies by. 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. It's hard to know if Quaker Oats knew what a revolutionary idea they had when they printed a recipe right on the box. Because they embody the same values Quaker Oats wanted to be associated with: "honesty, integrity, purity and strength.". . 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. Almost USD 1.7 billion to acquire Snapple in December 2004 recovery, Peltz says no over. The spirit of Snapple called for another way of the original founders of Oats... In most corporations, and so on for $ 300 million, a macroeconomic led... Can not find a clear path in uniting both companies then an M & a will.! For a common good or service the magic is back, the company film. Know that if you Come up with an idea, its at going!, Greg, & quot ; Beverage World, December 1995, p. 50-54 heated debate going in the products... 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