Definition, Meaning, Types, and Examples, What Is Horizontal Integration? When contemplating a deal, managers at both companies should list all the barriers to realizing enhanced shareholder value after the transaction is completed. You know that if you come up with an idea, its at least going to see the light of day.. smaller yet more publicized deal - the acquisition of Snapple - that will go down as Smithburg's, and Quaker's, costliest mistake. The effective premium to market valuation was 3.00%. Thats a lesson executives considering a brand acquisition might want to keep in mind. new product development. At the same time, Quaker management failed to understand the differences between promoting and distributing Snapple versus Gatorade. 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. 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. Times staff writer Nancy Rivera Brooks contributed to this report. 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. If managed properly, it can be a huge success.. Once the two companies decide who's going to lead the combined corporation, their concern for corporate culture ends. In 1968, the New York Central and Pennsylvania railroads merged to form Penn Central, which became the sixth-largest corporation in America. Oddly, there is a positive aspect to this flopped deal (as in most flopped deals): The acquirer was able to offset its capital gains elsewhere with losses generated from the bad transaction. "Form 10-K for the Fiscal Year Ended December 31, 2008.". Had the Snapple acquisition been a mistake? 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. The mess involving Snapple--which virtually invented the market for alternative soft drinks and had sales of about $550 million last year--is also an illustration of corporate hubris that ultimately harmed Quaker and its stockholders. 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.". That's stuff found in weed-killer, and specifically, in Roundup. 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. Quaker & Snapple In 1994, grocery store legend Quaker Oats acquired the new-kid-on-the . Advertising These include: Managers at both entities need to communicate properly and champion the post-integration milestones step by step. Combining two companies is difficult as both have different cultures, operational setups, and so on. When brand and culture fall out of alignment, both brand and corporate owner are likely to suffer. In 1994, grocery store legend Quaker Oats . 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. 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. In addition to overpaying, management broke a fundamental law in mergers and acquisitions: Make sure you know how to run the company and bring specific value-added skill sets and expertise to the operation. It recorded sales of about $700 million last year. This case looks at the purchase of Snapple in 1994 by Quaker Oats. 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). The consolidation of AOL Time Warner is perhaps the most prominent merger failure ever. The railroads, which were bitter industry rivals, both traced their roots back to the early- to mid-nineteenth century. When Quaker sold Snapple to Triarc Companies, they converted the struggling Snapple brand into a successful one by applying a good marketing strategy. Two other kid-friendly oatmeals followed, Treasure Hunt and Sea Adventures. 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. 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. 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. 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. 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. 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. Search the for Website expand_more. The game featured a house with a yard and three rooms, and a total of 20 different places you could pick to hide. 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. Snapple, based in East Meadow, N.Y., is a leader in the U.S. ready-to-drink iced tea and fruit-juice drink markets. Quaker Organic Instant Oatmeal is USDA-certified organic and made with 100% whole grain oats. The company was only around for about a year, and that's not really surprising their games were terrible on an epic scale. 2 In addition to overpaying,. ''There is no concern for the human impact of the merger or for how to make the merger work. Quaker Oats and their family of products have been a part of our everyday life for decades. Gatorade is in the sports drink segment, while Snapple is in the alternative beverage space. Nor do I think it was a case of a nimble upstart outflanking a lumbering corporate behemoth. As each of Quaker's initiatives failed or backfired, Snapple sales lost steam. "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. 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. to sell it to Siemens A.G. and return to a focus on the computer business. The company changed its name to Quaker Foods and Beverages after being acquired by PepsiCo, Inc., in 2001. Nextel employees often had to seek approval from Sprint's higher-ups in implementing corrective actions, and the lack of trust and rapport meant many such measures were not approved or executed properly. Ultimately, PepsiCo succeeded in a bid to to acquire Quaker Oats and its crown jewel brand of Gatorade in 2001. But just two years later, the company shocked Wall Street by filing for bankruptcy protection, making it the largest corporate bankruptcy in American history at the time. 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. Less than one year after Quaker Oats acquired Snapple for $2 billion, Snapple's sales were declining, calling into question the value of the $1.3 billion in goodwill Quaker Oats had recognized at the acquisition. In 1997, Quaker sold Snapple to Triarc Beverages for $300 million, a price most observers found generous. Snapple was sold at a huge loss in March 1997, a fact that led to the resignation of longtime chairman, president, and CEO William Smithburg in April 1997. I dont think that there was anyone at Quaker who had loved that brand, and it takes passion to get behind a brand and turn it around. Or how about Life Cereal? It was an incredible thing, because the entire industry was truly built on their founders' ability to convince the public they should be eating livestock feed. In one, tennis star Ivan Lendl garbled the brand name into Shnahpple Several others featured a Snapple order-processing clerk named Wendy Kaufman. - Acquisition of Snapple by Quaker Oats, 1994. Fresh from their success with Gatorade, Quaker Oats wanted to make Snapple drinks just as . 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. Expert Help. "How Snapple Got Its Juice Back. 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. Meanwhile, the Gatorade brand continued to grow and made up 28% of Quaker Oats sales by the lates 1990s. The movie was originally pitched as a pretty sweet deal for Quaker Oats. Quaker & Snapple. Operations Management questions and answers. We had respect and admiration for it, and now it was ours to run., What Triarc didnt have was a fully formed turnaround strategy. "Time Warner Merger Terms Approved. The team understood the need to stay away from big risky ideas. It became a part of pop culture and television history in spite of the naysayers. Warmer storms could cause problems, Hyundai was poised to become Teslas top contender. I was always as keen to get the new products to market as Mike and Ken were, says Peltz. And in 2012, Larry himself got a makeover. We didnt have a lot else to tell them. Study Resources. Their answers led me to a conclusion that many marketing professionals are likely to resist: There is a vital interplay between the challenge a brand faces and the culture of the corporation that owns it. Snapple, at that point was trading at $14 per share. We might say something didnt taste so great and needed reformulating, but there was never a time when we said stop. Early in the merger, the two companies maintained separate headquarters, making coordination more difficult between executives at both camps. ", University of Pennsylvania-Knowledge@Wharton. Ferdinand Schumacher was one of those founders, the trial-size sample, and the prize in the box, Quaker Oats Apple and Cranberries Instant Oatmeal. As Gilbert once told me: We can be disciplined, but should we be? She has nearly two decades of experience in the financial industry and as a financial instructor for industry professionals and individuals. The other was that we just thought it was exciting. Warner Communications merged with Time, Inc. in 1989. B4.-----, 'Quaker Oats Sets Broad Realignment, Takes Charge of As Much As $130 Million,' . But, are they? Stern was an especially effective spokesperson. Its market capitalization was $1.7024 billion. Finally, executives of the acquiring company should avoid paying too much for the target company. However, as its dial-up subscribers dwindled, Time Warner stuck to its Road Runner Internet service provider rather than market AOL. Quaker Oats & Snapple (1998) Disaster: US $1.4 billion What did Disney actually lose from its Florida battle with DeSantis? 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. In 1993, Quaker paid $1.7 billion for the Snapple brand, outbidding Coca-Cola, among other interested parties. Its number one priority: repair relations with disgruntled distributors. Its also been selling its own brand of trendy drinks under the Mistic name. For a 96.50% shareholding, the Quaker Oats paid $1.642 billion. Quaker Oats management needs to decide what to do in light of these recent events. Nextel was too big and too different for a successful combination with Sprint. According to Brian Cronin (via Huffington Post) you can thank Quaker Oats for getting the movie made, and for giving you those bad dreams. But Quaker Chairman William D. Smithburg--who had turned sports-drink maker Gatorade into a smashing success after buying that business in 1983--was convinced he could do the same with Snapple, in part by meshing the ways in which Snapple and Gatorade were marketed. Due Diligence Case Study 6. Although the merging sounded strategically compelling, the two companies could not manage to merger due to cultural variation. 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. 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. Timothy Li is a consultant, accountant, and finance manager with an MBA from USC and over 15 years of corporate finance experience. How many times have you started your day with a piping hot bowl of Quaker oatmeal? 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. 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. SBC was founded by Leonard March, Hyman Golden and Arnold Greenburg in . He does have a name, though, and according to The Wall Street Journal, company insiders call him Larry. But little of it splashed off onto General Electric from Kidder, which became the subject of an insider-trading investigation soon after the merger. We perceive them as the opportunity. Beacon Press, 2014. Back in his native country and most of Europe everyone was familiar with the idea of eating oats and porridge. 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. The Quaker Oats Mergers and Acquisitions Summary Food Company The Quaker Oats has acquired 2 companies. The FDA acknowledged that in their official rules and regulations, stating that just wasn't the case and by 1999, the Chicago Tribune was reporting Quaker Oats was seeing record sales. At the time, Snapple was still run by the three founders of the company. 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. Chicago-based Quaker, which . As a subscriber, you have 10 gift articles to give each month. Column: 15 minutes of fame flies by. It then compounded the misstep by dropping Wendy the Snapple Lady from the ads and even eliminating her job. The convenience factor got people interested, and Schumacher went on to figure out a way to make them cook faster. The merger of the legendary Walt Disney and "everything-we-create-kids-adore" Pixar was a match made in cartoon heaven. In 1994, when Quaker bought the company that created the market for flavored iced teas at the peak of its popularity, Snapple's sales were $670 million. According to Marketing Lens, though, they've always dabbled in other products like pet food and even clothing. New York Central and Pennsylvania Railroad, Mergers and Acquisitions (M&A): Types, Structures, Valuations, What Is an Acquisition? It has happened to corporate giants and high-technology start-ups alike, including I.B.M., Xerox, General Motors, Sony, General Electric and Novell. Im hardly courting controversy by asserting that a brand might fit better in one companys portfolio than in anothers. Quaker Oats Company, former (1901-2001) Chicago-based American manufacturer of oatmeal and other food and beverage products. In the one-player game, you played against the computer. He got a complete overhaul in the 1970s, to a blue-and-white logo that, frankly, is very 70s. ``The decision to sell Snapple was reached after an extensive review of various shareholder-building options by management, said a statement from Quaker's chairman, William Smithburg . On the radio, the brand grew by sponsoring shockmeisters Howard Stern and Rush Limbaugh. But in true Triarc fashion, no one asked a consultant. The QO Ordnance Company was a subsidiary of Quaker Oats, and they oversaw ammunition plants in Nebraska. Quaker's late 1994 acquisition of Snapple, the "new age" beverage marketer, proved to be disastrous, costing the company well over $1 billion. There's an almost infinite number of factors that come into play in an acquisition like this, but the LATimes blamed the disastrous merger on the company's failure to understand Snapple's strengths along with stiff competition from the other beverage distributors. Bottom line? QUAKER OAT'S snapple: failing to understand the essence of the brand 1. There's a heated debate going in the scientific community about just how dangerous glyphosate is. '', See the article in its original context from. Wonka Bars came a few years later, and Quaker Oats sold that division to Nestle in 1988. The Sad State of Corporate Innovation See how corporates are failing when it comes to innovation. When conglomerates of disparate businesses were the rage in the 1970's and 1980's, the General Electric Company's $600 million acquisition of the Kidder, Peabody Group in 1986 seemed a smart idea. They had an uphill battle ahead of them, and according to Bustle, they started with their Dinosaur Eggs oatmeal. 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. We knew Snapple because we had been going up against it every day in the marketplace with Mistic, he adds, referring to Triarcs first entry into the premium fruit-drink category. These include white papers, government data, original reporting, and interviews with industry experts. AOL had arrogant and aggressive employees while Time Warner had corporate and staid employees. Analysts said that Quaker had paid too much for Snapple in the first place and that the purchase was plagued by bad timing. Cultural clashes and turf wars can prevent post-integration plans from being properly executed. The idea took shape in Weinsteins office. We also reference original research from other reputable publishers where appropriate. If a merger or acquisition fails, it can be catastrophic, resulting in mass layoffs, a negative impact on a brand's reputation, a decrease in brand loyalty, lost revenue, increased costs, and sometimes the permanent closure of a business. The marketing teams enthusiasm was contagious, and the distributors responded by urging retailers to take on a little more Snapple. Their failure with Snapple wasnt a matter of ineptitude or a bureaucratic tin ear. But replicating Gatorades success was more than an objectiveit was a matter of corporate survival. When they bought Snapple in 1994, the acquisition made them the third largest beverage company on the continent (behind Coca-Cola and PepsiCo). Take Sneak'n Peek. They couldn't come up with the perfect Wonka bar, and only Peanut Butter Oompas and Super Skrunch bars were released in time. 1Prince, Greg, "Come Together," Beverage World, December 1995, p. 50-54. 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. 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.". Rich L.A. homeowners are snapping them up, Elizabeth Holmes cites her new baby as a reason she should avoid prison for Theranos scam. Just a little over two years later, they sold Snapple for only $300 million dollars, essentially, taking a $1.4 billion loss on Snapple. Many soft-drink brands flourished in the 1980s serving New York's Yuppies, but only Snapple made the big time. It used its leverage with supermarkets to win premium display space and squeezed costs out of the supply chain. That got people noticing his oats but making them? Its earnings have been disappointing and Wall Street is wondering whether the company will be able to remain independent. Prior to 1997, foods weren't allowed to advertise claims about specific benefits. 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. D) none of these above are correct. To stave off acquisition by one of those larger competitors, Quaker needed to add a second brand that could capture similar economies. Complaint at 34. By gaining access to each other's customer bases, both companies hoped to grow by cross-selling their product and service offerings. 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. Based on a study of mergers and acquisitions over 10 years, Mr. Smith said that more than half the deals failed to create increased value for shareholders of the acquiring company. AOL missed out on these and other opportunities, such as the emergence of higher-bandwidth connections, due to financial constraints within the company. Snapple also posted a $160-million operating loss for 1995 and 1996 combined, which means Quakers total losses from Snapple probably approach $2 billion. Take the case of the Quaker Oats-Snapple merger. Triarcs gleeful experimentalism restored it. 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. They also need to be attuned to the target company's branding and customer base. 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. The Willy Wonka line of candy was launched alongside the movie, but there were difficulties. Acutely aware of the make-or-break nature of the acquisition, Quakers executives formulated a marketing plan that sought to minimize or eliminate risk. In November 2000, shortly after Triarc sold Snapple to Cadbury Schweppes, I posed those questions to Triarcs top executives: chairman and majority owner Nelson Peltz, CEO Mike Weinstein, and marketing director Ken Gilbert. 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. 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. Some processes are best entrusted to managers with cautious, prudent temperaments while others flourish in the hands of risk takers. Several changes in management, including hiring the executive who turned Poland Spring water into a national brand, did nothing to reverse the trend. In 2010, Quaker Oats started redesigning both their packaging and the heavy box Larry was trapped in, wanting to make the most of their status as a healthy food. Peltz hired Weinstein and Gilbert for their impeccable professional credentials, and they could have used marketing-speak if they had wanted to. 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 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. We can write down positioning statements, but the Snapple trademark spills over the boundaries we put on it. The brands vitality responded better to play than to planning. But thats not the end of the story. But that was enough. In a definitive agreement . Snapple's sales grew from $80 million in 1989 to $231 million in 1992 and $516 million in 1993. The Stuarts were one of the founders of the company, but when he died in 2014, The New York Times' obituary highlighted some controversial things. Other acquisitions that went sour include: *. Those challenges got Henry Crowell one of the original founders of Quaker Oats thinking (via The Gazette). You can just see him serving up a piping hot bowl of oatmeal to his kids, and he's about as far from Tony the Tiger as you can get. However, time and again, executives face major stumbling blocks after the deal is consummated. So before committing to a deal, dont just consider a brands sales. Matsushita couldn't make the prim and proper Japanese corporate culture work with the Joe Hollywood culture of MCA.''. Who can help student-athletes cash in? U.S., including Quaker Oats, Aunt Jemima, and Cap'n Crunch and Life cereals. Novell is not alone. The term mergers and acquisitions (M&A) refers to the consolidation of companies or their major assets through financial transactions between companies. Of course, the resultant declines in service only exacerbated the loss of customers. According to the Smithsonian, they were given all kinds of incentives to join, like hearty breakfasts (starvation was a frequent punishment), and trips to baseball games. They say that he's not an actual person, but that he was chosen as a representative of the Quakers. These days his happy visage seems oddly inappropriate. According to their design firm's Michael Connors (via AdWeek), "We took about five pounds off him.". 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. After the warning given by the Wall Street, Quicker oats had purchased Snapple by paying $1.7 billion. Failed Mergers and Acquisitions Examples America Online and Time Warner (2001): US$65 billion Daimler-Benz and Chrysler (1998): US$36 billion Every move appeared logical, yet each phase of Quakers strategy ran into problems. 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. They gave us a chance.. Quaker Oats wanted in on the study because they saw it as a way to prove their oatmeal was just as healthy as their Cream of Wheat competitors. The Quaker Oats Company had been founded at the start of the 20th century, and its most famous product, Quaker Oats Cereal, originated in 1877. A variety of marketing measures by Quaker, including a giveaway program last summer, failed to reinvigorate sales and the fruit-juice and iced-tea line lost more than $100 million. This article presents a few examples of busted deals in recent history. Snapple's previously popular advertisements became diluted with inappropriate marketing signals to customers. 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. 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. In March 1997, Snapple had a new ownerand a very uncertain future. The brands distribution channels were as unconventional as its promotions. As each of Quakers initiatives failed or backfired, Snapple sales lost steam. In addition to accumulated operating losses and certain tax benefits, analysts estimated that the total undiscounted loss ranged between -$1.2 and -$1.5 billion. 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 managerial temperament makes itself known and felt in those small, almost unconscious, actions and decisions. 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. systems management. a) the accounts payable. There are factors beyond economic analysis to take into account if the process of brand management is to cohere. Some brands just want to have fun, and from birth Snapple was one of them. Patrick specialty dyes and chemicals businesses. ", Harvard Business Review. 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