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. However, within three years Quaker . * 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. "Form 10-Q for the Quarterly Period Ended September 30, 2005. The other was that we just thought it was exciting. It then compounded the misstep by dropping Wendy the Snapple Lady from the ads and even eliminating her job. Due Diligence Case Study 6. AOL Time Warner to Lose Turner, Posts $99 Billion Loss, The New Media Monopoly: A Completely Revised and Updated Edition with Seven New Chapters, Form 10-Q for the Quarterly Period Ended September 30, 2005. The movie was originally pitched as a pretty sweet deal for Quaker Oats. Quaker Oats management needs to decide what to do in light of these recent events. Cultural clashes between the two entities often mean that employees do not execute post-integration plans. A 1995 lawsuit found that while the radioactivity hadn't been enough to cause lasting damage, the boys involved were entitled to a settlement and apology. King University. Small as the individual distributors were, they aggregated into a mighty marketing force. New York-based Triarc, with nearly $1 billion in annual revenue, has widely diverse interests including its Royal Crown Co. and Mistic Brands beverages, Arbys Inc. restaurants, National Propane liquefied petroleum gas and C.H. Until Quaker Oats possessed Snapple, it caused them a loss of $1.6 million on a daily basis. Quaker Foods North America Quaker Tower555 West Monroe, Suite 16-01Chicago, Illinois 60604-9001U.S.A.Telephone: (312) 821-1000Web site: https://www.quakeroats.com Source for information on Quaker Foods North America: International Directory of Company Histories dictionary. Marvin Dumont has 15+ years of experience as a journalist and managing editor. That has led to widening speculation that Smithburgs days as Quakers chief executive are numbered. A week prior to the results going public, a California judge ruled in favor of a man who claimed repeated exposure to Roundup caused his terminal cancer. To add insult to injury, PepsiCo acquired Quaker. Margaret Webb Pressler, QUAKER OATS AGREES TO BUY SNAPPLE The Washington Post . The give-it-a-go approach paid off again later when Triarc launched a Snapple extension called Elements, a range of teas with flavor names like Sun, Rain, and Fire. 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. Schumacher got creative, and started selling glass jars packed with cubed oats. Prior to 1997, foods weren't allowed to advertise claims about specific benefits. These include white papers, government data, original reporting, and interviews with industry experts. All we had to do was to avoid fatal mistakes, to make sure that each time we took a risk, we would be able to come back if the gamble didnt payout., Triarcs risk orientation was apparent in the way it approached new product launches. Railroads operating outside of the northeastern U.S. generally enjoyed stable business from long-distance shipments of commodities, but the densely populated Northeast, with its concentration of heavy industries and various waterway shipping points, had a more diverse revenue stream. Many have failed because the integration of the acquired company with the parent has been poor. So what? 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. Brands thrive when theres a close fit between process and corporate temperament. And finally, the politicized and turf-protecting culture of Time Warner made realizing anticipated synergies that much more difficult. 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. PURCHASE OF GATORADE IN 1983<br> 5. u d ) if the alliance or acquisition pursued. 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. Quakers stock edged up 25 cents to close at $37.75, while Triarcs stock jumped $1.625 a share to $17.375, both in New York Stock Exchange composite trading. new product development. Search the for Website expand_more. How many times have you started your day with a piping hot bowl of Quaker oatmeal? It has happened to corporate giants and high-technology start-ups alike, including I.B.M., Xerox, General Motors, Sony, General Electric and Novell. Acquisition indigestion is a slang term that describes the difficulties that a company can face implementing a merger or acquisition. Ferdinand Schumacher was one of those founders, and he immigrated to the United States from Germany in 1851. Oatmeal has come a long way as far as reputation is concerned. The Quaker Oats Company's $1.4 billion debacle with Snapple only proves that the well-trod merger road has. It went from local to national success and was poised to go international when the founders sold out to Quaker. Aware that Snapple had grown beyond their limited expertise, Greenberg and his partners cast about for a new owner that could take the brand to the next level. Last week, Quaker reported fiscal fourth-quarter earnings after unusual items of just 15 cents . A principal reason for the failed merger effort between Quaker Oats and Snapple was: the accounts payable. - Merger of AOL and Time Warner, 2001. Beacon Press, 2014. 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. So when we come up with a new idea, we roll with it. They also need to be attuned to the target company's branding and customer base. After buying Snapple for $1.7 billion, Quaker Oats immediately started losing money. 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. Twenty-nine months later, Quaker announced an agreement to sell Snapple for $300 million and take a $1.4 billion write-off on the sale. TimesMachine is an exclusive benefit for home delivery and digital subscribers. The problems dragged down the total performance of Chicago-based Quaker, which had sales of $5.2 billion last year, and Quakers stock price badly trailed the overall stock market. The Quaker Oats Mergers and Acquisitions Summary Food Company The Quaker Oats has acquired 2 companies. Gene Wilder's Willy Wonka & the Chocolate Factory is one of those iconic movies of any childhood even if it did give you nightmares. Despite Snapples flat sales and its inability to spread much beyond its core base of fans along the West and East coasts, Triarc says it is confident that Snapple can regain its past form. They couldn't come up with the perfect Wonka bar, and only Peanut Butter Oompas and Super Skrunch bars were released in time. 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. There was no such mismatch between Gatorade and Quaker. To stave off acquisition by one of those larger competitors, Quaker needed to add a second brand that could capture similar economies. That's not good publicity, and Fast Company says Quaker Oats did respond to the findings with this (partial) statement: "Any levels of glyphosate that may remain are significantly below any regulatory limits and [are] safe for human consumption.". The team understood the need to stay away from big risky ideas. A version of this article appeared in the. 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. 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. Cultural concerns exacerbated integration problems between the various business functions. In just 27 months, Quaker Oats sold Snapple to a holding company for a mere $300 million, or a loss of $1.6 million for each day that the company owned Snapple. 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. Snapple's sales grew from $80 million in 1989 to $231 million in 1992 and $516 million in 1993. Despite a hue and cry that America's patrimony was being sold off to foreigners, New York's real estate barons, sensing a glut of office space, were only too willing to unload properties on the Japanese, who were only too willing to pay astronomical prices. smaller yet more publicized deal - the acquisition of Snapple - that will go down as Smithburg's, and Quaker's, costliest mistake. QOC produced Gatorade and sought to expand their beverage line with the merger/acquisition of Snapple Beverage Company (SBC) (History, 2011). 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. 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. 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. Quaker Oats & Snapple (1998) Disaster: US $1.4 billion Just the opposite. A company like Quaker would never take such a casual approach to product development, but it was standard practice at Triarcand true to Snapples back-of-the-store, back-of-the-envelope roots. With only one brand in its beverage portfolio, Quaker was at a serious disadvantage to larger players that could use their broader lineups to capture economies of scale. Below, we look at some the worst mergers and acquisitions undertaken by large corporations, and how the good times went bad. Warner Communications merged with Time, Inc. in 1989. They got their medical testing done, MIT got their results it was a win-win. 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. systems management. As each of Quakers initiatives failed or backfired, Snapple sales lost steam. Snapple, at that point was trading at $14 per share. In 1994, grocery store legend Quaker Oats purchased the new kid on the block, Snapple, for $1.7 billion. But a merger of two companies with related businesses, which has become so fashionable in the 1990's, is no guarantee of success, said Ken Smith, a post-merger consultant with Mercer Management Consulting. Investors who thought $14 too low could refuse to tender, vote against the merger, and demand appraisal under 262 of the Delaware Corporation Law. 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. Acutely aware of the make-or-break nature of the acquisition, Quakers executives formulated a marketing plan that sought to minimize or eliminate risk. Within a span of 20 months, Quaker Oats had to sell off Snapple at a loss of about 20%. ''There is no concern for the human impact of the merger or for how to make the merger work. "The New Media Monopoly: A Completely Revised and Updated Edition with Seven New Chapters," Page 4. The railroads, which were bitter industry rivals, both traced their roots back to the early- to mid-nineteenth century. What we call a brand identity is actually a form of meaning, made at least as much by small, impromptu managerial acts as by grand designs precisely executed. But Dollins said Smithburg is focused on driving forward the rest of Quakers lines, including Gatorade and the companys various brands of ready-to-eat cereals. Log in Join. 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. 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. ", U.S. Securities and Exchange Commission. He decided on packaging his oats in the round, colorful containers we still see today. Quaker Oats and Snapple no. And thus was born Wendys Tropical Inspiration. The merger of Quaker and Snapple was considered to be a disaster owing to an incorrect marketing strategy. Some processes are best entrusted to managers with cautious, prudent temperaments while others flourish in the hands of risk takers. Can AT&T Avoid the Merger Mistakes of AOL-Time Warner? Management pushed for a merger in a somewhat desperate attempt to adjust to disadvantageous trends in the industry. The Sad State of Corporate Innovation See how corporates are failing when it comes to innovation. Respected executives at both companies sought to capitalize on the convergence of mass media and the Internet. The merger of the legendary Walt Disney and "everything-we-create-kids-adore" Pixar was a match made in cartoon heaven. Those challenges got Henry Crowell one of the original founders of Quaker Oats thinking (via The Gazette). - Acquisition of Snapple by Quaker Oats, 1994. Enter Quaker Oats. According to Stuart, his views came from the idea "[] that the US didn't accomplish much in committing troops to the First World War," and they were all about keeping America out of the second. Part of it was selfishnesswe liked the stuff so much we wanted to get it into our offices. The Willy Wonka line of candy was launched alongside the movie, but there were difficulties. Advertising Or how about Life Cereal? Early in the merger, the two companies maintained separate headquarters, making coordination more difficult between executives at both camps. Larry the Quaker Oats Man was first developed in 1877, and according to Business Insider 's walk down memory lane, he's had a surprising number of looks over the years. Quaker Oats Co. is floundering in a sea of iced tea and fruit juices that cost it a fortune. B4.-----, 'Quaker Oats Sets Broad Realignment, Takes Charge of As Much As $130 Million,' . Investment bankers (who work on commission) and internal deal champions, both having worked on a contemplated transaction for months, will often push for a deal "just to get things done." It's comfort food to the max, and that might have to do with the smiling, friendly-looking man on the logo. 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. Its not that they didnt know the other terminology. GE bought Kidder for $600 million in 1986, but had invested an additional $800 million in the firm between the purchase and the sale. Less than three years later, Quaker sold Snapple to Triarc for $300 million, representing a more than 82% loss on its original investment. 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. U.S. Securities and Exchange Commission. Precisely because they were planned with a professional thoroughness and care foreign to the brand, Quakers moves with Snapple shattered that consensus. 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. Rolm gained market share and lost money, prompting I.B.M. The brands distribution channels were as unconventional as its promotions. Had the Snapple acquisition been a mistake? Several changes in management, including hiring the executive who turned Poland Spring water into a national brand, did nothing to reverse the trend. Triarc said it expects to complete the purchase in the second quarter of this year, pending a federal antitrust review. Bizarre? In 1993, despite warnings from Wall Street that the company was paying $1 billion too much, the company acquired Snapple for a purchase price of $1.7 billion. A vertical merger is the merger of two or more companies that provide different supply chain functions for a common good or service. How about it, do you remember eating those as you watched your Saturday Morning Cartoons? We might say something didnt taste so great and needed reformulating, but there was never a time when we said stop. He noted that Quakers loss on the purchase means Quaker lost $1.6 million for each day it owned Snapple, which makes exotic juices and iced teas. There are two different kinds of oatmeal: instant, and the kind that takes next to forever to cook. Definition and Examples, Vertical Merger: Definition, How It Works, Purpose, and Example, Pyrrhic Victory in Business: Meaning, Examples and FAQ, Pennsylvania Railroad and New York Central Railroad Records, 1853-1965. * October 1994: General Electric Co. sells Kidder, Peabody & Co. to rival brokerage house PaineWebber Group for stock valued at $670 million. Some brands just want to have fun, and from birth Snapple was one of them. The group dissolved after Pearl Harbor, Stuart enlisted in the Army, and served in Europe. The idea took shape in Weinsteins office. Huge rivals, such as Coca-Cola Co. and PepsiCo Inc., charged into the market with new products. It's because Quaker Oats wanted to make sure the name "Willy Wonka" was front and center so they could market the heck out of it. 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 . customer feedback. Stern took his revenge by subjecting Quaker to months of on-air diatribes that urged listeners to stay away from Crapple.. 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. Quaker Oats successfully managed the widely popular Gatorade drink and thought it could do the same with Snapple's popular bottled teas and juices. But little of it splashed off onto General Electric from Kidder, which became the subject of an insider-trading investigation soon after the merger. In 1997, Quaker sold Snapple to Triarc Beverages for $300 million, a price most observers found generous. consulting firms. There are factors beyond economic analysis to take into account if the process of brand management is to cohere. At the same time, Quaker management failed to understand the differences between promoting and distributing Snapple versus Gatorade. Its market capitalization was $1.7024 billion. So, there you have it. In effect, Triarc let its distributors do its market research. 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?" Im hardly courting controversy by asserting that a brand might fit better in one companys portfolio than in anothers. This paper discusses why the hyped-up merger of food giants, Quaker Oats and Snapple Beverages, was doomed to fail from the start. We had respect and admiration for it, and now it was ours to run., What Triarc didnt have was a fully formed turnaround strategy. Quaker Oats offered $14 in cash for each share of Snapple stock; the merger agreement contemplated the same payment per 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. He got to know the founders of the business personally and conveyed to his listeners a genuine and infectious regard for the products and the people behind them. Quakers losses from Snapple actually exceeded the $1.4-billion difference between what it paid for Snapple and its sale price. Wall Street had warned saying that the amount is excessive, to acquire a company. It's easy to do! . In most corporations, brand marketing sounds like a form of warfare. Timothy Li is a consultant, accountant, and finance manager with an MBA from USC and over 15 years of corporate finance experience. - Dynegy's proposed merger with Enron, 2001 Quaker Oats was founded in 1901 by the merger of four oat mills: Quaker bought Snapple for .7 billion in 1994 and sold it to Triarc in 1997 for 0 million. 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