The debacle cost both the chairman and president of Quaker their jobs and hastened the end of Quakers independent existence (its now a unit of PepsiCo). King University. In 2008, it wrote off an astonishing $30 billion in one-time charges due to impairment to goodwill, and its stock was given a junk status rating. At the time of the initial acquisi- They had an uphill battle ahead of them, and according to Bustle, they started with their Dinosaur Eggs oatmeal. Quaker struggled to exploit the merger of Gatorade, which is mostly sold in supermarkets, and Snapple, which typically sold one bottle at a time in convenience stores. Of course, the resultant declines in service only exacerbated the loss of customers. When brand and culture fall out of alignment, both brand and corporate owner are likely to suffer. Quaker said Snapple just didnt work out as planned. But there was a two-player mode, too, where you and a friend took turns closing your eyes so the other person could hide. Some processes are best entrusted to managers with cautious, prudent temperaments while others flourish in the hands of risk takers. But a marketing professional would probably explain the improved fit in terms of distribution economies or manufacturing synergies. The reasoning was twofold. Take Quaker Oats Apple and Cranberries Instant Oatmeal. 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. 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, as its dial-up subscribers dwindled, Time Warner stuck to its Road Runner Internet service provider rather than market AOL. 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. The. Finally, Dave Clark pitched an idea his superiors said was too boring, basing it on his family's breakfast struggles. Why did the brand lose $1.4 billion in value under Quakers stewardship in just four years? The company was only around for about a year, and that's not really surprising their games were terrible on an epic scale. quaker oats and snapple - Tuck School of Business - Dartmouth . 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. Less than three years later, Quaker sold Snapple to Triarc for $300 million, representing a more than 82% loss on its original investment. Snapple, based in East Meadow, N.Y., is a leader in the U.S. ready-to-drink iced tea and fruit-juice drink markets. With a $35 billion price tag, the merger did not pay off. Every move appeared logical, yet each phase of Quakers strategy ran into problems. 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. Quaker & Snapple. AOL had arrogant and aggressive employees while Time Warner had corporate and staid employees. Definition, Meaning, Types, and Examples, What Is Horizontal Integration? Acquisition indigestion is a slang term that describes the difficulties that a company can face implementing a merger or acquisition. From their 1994 peak, sales declined every year, plunging to $ 440 million in 1997. Peltz hired Weinstein and Gilbert for their impeccable professional credentials, and they could have used marketing-speak if they had wanted to. When you think of Quaker Oats, you think of their oats and their cereal products, right? Had the Snapple acquisition been a mistake? The Quaker Oats Company (QOC), founded in 1877, produces a variety of products ranging from oat bars, to rice cakes (History, 2011). 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. ''But even Pepsi messed up its restaurant lines. Quakers executives approached the Snapple deal with a mixture of confidence and urgency. There's a heated debate going in the scientific community about just how dangerous glyphosate is. 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. Their failure with Snapple wasnt a matter of ineptitude or a bureaucratic tin ear. Other acquisitions that went sour include: *. But probably Quakers worst move was to dump Limbaugh and Stern. In 2001, America Online acquired Time Warner in a megamerger for $165 billion; the largest business combination up until that time. 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. In 1995 sales dropped to $610 million. We drank the ideas, and we [took a look at] the packaging. * October 1994: General Electric Co. sells Kidder, Peabody & Co. to rival brokerage house PaineWebber Group for stock valued at $670 million. Triarc plans to operate Snapple with its Mistic Brands Inc. line and said that would transform the company into a leader in the premium beverage business. 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. In October 2000, Triarc, the privately held outfit that took Snapple off Quakers hands, sold the brand to Cadbury Schweppes for about $1 billion.1 The turnaround would be astonishing in any industry, but especially in the beverage-marketing business, where short-lived brands are depressingly common. Below, we look at some the worst mergers and acquisitions undertaken by large corporations, and how the good times went bad. 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. In 1949, boys living at the Fernald State School a state-run school for abandoned boys were invited to join the Science Club. Many have failed because the integration of the acquired company with the parent has been poor. The Quaker Oats Company took a different and surprising role in the war effort. 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. 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. . C) the diligence of employees. New York Central and Pennsylvania Railroad, Mergers and Acquisitions (M&A): Types, Structures, Valuations, What Is an Acquisition? In the one-player game, you played against the computer. Bottom line? According to their design firm's Michael Connors (via AdWeek), "We took about five pounds off him.". customer feedback. And with 70-90% of M&A transactions failing to increase value, the biggest challenge isn't getting approved; it's integrating cultures after the deal closes. 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. ``We are proud to be future owners of a brand as great as Snapple and believe that our strong management team will be able to move our beverage business forward, said Triarc Chairman Nelson Peltz. Then revive the funky packaging, adventurous flavors, and anything-goes attitude that first made the brand soar. Quaker Oats & Snapple (1998) Disaster: US $1.4 billion Stern took his revenge by subjecting Quaker to months of on-air diatribes that urged listeners to stay away from Crapple.. Quaker Oats and Snapple no. 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. 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. I had a picture of Wendy on my wall, Weinstein recalls. When he came to the US, he found oats were feed for horses and people certainly didn't want to eat that. Limited economies of scope are one reason. 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. Rich L.A. homeowners are snapping them up, Elizabeth Holmes cites her new baby as a reason she should avoid prison for Theranos scam. Respected executives at both companies sought to capitalize on the convergence of mass media and the Internet. Quaker Oats and Snapple Quaker Oats and Snapple Eddie Cobb BUSA 3210 King University Professor Morrison Quaker Oats and. The plan flopped for several reasons. The price tag to acquire Snapple was $1.7 billion, considered by many to be an astronomical sum. Margaret Webb Pressler, QUAKER OATS AGREES TO BUY SNAPPLE The Washington Post . 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). It's easy to do! 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. Rolm gained market share and lost money, prompting I.B.M. This can help an M&A deal be successful. The convenience factor got people interested, and Schumacher went on to figure out a way to make them cook faster. Other breakfast foods were also found to contain the weed-killer chemical, like Cheerios and Lucky Charms. Sales, which had been declining 20% a year, turned flat within three months of Triarcs purchase. We perceive them as the opportunity. 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. We started out loving the brand the first day, says Gilbert. PURCHASE OF GATORADE IN 1983<br> 5. But Snapple was a lunchtime beveragepeople werent looking for anything larger than a 16-ounce bottle they could polish off in one sitting. He decided on packaging his oats in the round, colorful containers we still see today. 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. If you're looking to grab some Quaker Oats for a super healthy breakfast, get the plain ones and dress it up yourself. Prior to 1997, foods weren't allowed to advertise claims about specific benefits. But there was a catch. Gatorade is in the sports drink segment, while Snapple is in the alternative beverage space. Thats a lesson executives considering a brand acquisition might want to keep in mind. A version of this article appeared in the. Did you notice? The question is whether they are going to pick it up a second time, and the distributors tell us pretty quickly whether thats happening. In the 1990s, Quaker Oats decided to make a serious push at getting kids interested in eating oatmeal. In August 2005, Sprint acquired a majority stake in Nextel Communications in a $37.8 billion stock purchase. 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. Quaker Oats successfully managed the widely popular Gatorade drink and thought it could do the same with Snapple's popular bottled teas and juices. Quaker Oats and their family of products have been a part of our everyday life for decades. ", United States Department of Justice. 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. To Quaker, new products were seen as a risk. Textbook actions produced textbook results: Gatorade sales swelled from $100 million to $1 billion in ten years, giving Quakers executives ample reason to believe they could produce similar growth for Snapple. This case looks at the purchase of Snapple in 1994 by Quaker Oats. Fresh from their success with Gatorade, Quaker Oats wanted to make Snapple drinks just as . Around this time, the race to capture revenue from Internet search-based advertising was heating up. 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. But competition in the new age category increased, even as sales slowed. His byline has appeared on Fox News, Forbes, and TheStreet.com. 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. My point here is not to disparage discipline or, indeed, the marketing professionals of Quaker Oats. 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. 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. Ari Emanuel lets his AI alter ego open Endeavors earnings call, Sam Bankman-Fried increasingly isolated as another associate takes a plea deal. 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. consulting firms. Further, a macroeconomic downturn led customers to expect more from their dollars. DEAL VALUATION Quaker paid $1.7 billion to acquire Snapple in December 2004. ''The key to success is the effectiveness of postmerger management. 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. The brands distribution channels were as unconventional as its promotions. Operations Management questions and answers. A vertical merger is the merger of two or more companies that provide different supply chain functions for a common good or service. They say that he's not an actual person, but that he was chosen as a representative of the Quakers. Initially Snapple had very little supermarket coverage. Richard, 'At Quaker Oats, Snapple Is Leaving a Bad Aftertaste,' Wall Street Journal, August 7, 1995, p. Quaker Oats was trademarked in 1877, and the next two decades saw three competing oat-milling companies come together to form a single conglomerate. Early in the merger, the two companies maintained separate headquarters, making coordination more difficult between executives at both camps. On November 2, 1994, Quaker and Snapple announced that Quaker would acquire Snapple in a tender offer and merger transaction for $1.7 billion in cash. But Snapple isnt about accomplishing an objective; its about adding a little whimsy to the humdrum and the everyday. Marvin Dumont has 15+ years of experience as a journalist and managing editor. How did Triarc restore most of that value in less than three years? You could have fun with Gatorade, but only after youd won the game. Cultural clashes between the two entities often mean that employees do not execute post-integration plans. Take Sneak'n Peek. Of course, none of the new product launches would have stood a chance without Snapples distributors. Wall Street had warned saying that the amount is excessive, to acquire a company. Due Diligence Case Study 6. In 1993, Quaker bought Snapple for almost USD 1.7 billion. 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. On the day the merger was announced formally, both the companies registered a fall in share prices. 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. A consultant would probably have cautioned against the launch, arguing that Elements slick New Age preciousness would sit uncomfortably under the Snapple logo. 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. 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. Quaker Oats had earlier purchased Gatorade and was very successful in growing that brand; Quaker Oats thought that they had the experience to do the same with Snapple. Ever wonder why it's not Charlie and the Chocolate Factory, like the book? It used its leverage with supermarkets to win premium display space and squeezed costs out of the supply chain. Download the free 31-page State of Innovation report. "Can AT&T Avoid the Merger Mistakes of AOL-Time Warner? 7 billion all stock bid. 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. This paper discusses why the hyped-up merger of food giants, Quaker Oats and Snapple Beverages, was doomed to fail from the start. The QO Ordnance Company was a subsidiary of Quaker Oats, and they oversaw ammunition plants in Nebraska. 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. 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. Study Resources. 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. . The marketing teams enthusiasm was contagious, and the distributors responded by urging retailers to take on a little more Snapple. ``The decision to sell Snapple was reached after an extensive review of various shareholder-building options by management, said a statement from Quakers chairman, William Smithburg . In contrast to Quakers buttoned-down, coolly professional culture, Triarc is the sort of place where employees wear costumes to work on Halloween. With total due diligence failure costs rising to $3.2 billion, it became clear that all the banks would now have to do due diligence checking of their clients by forming a view of the transaction from the customer's perspective. They got their medical testing done, MIT got their results it was a win-win. But who is he? Distributors and end-customers dis-agreed with . Quaker Organic Instant Oatmeal is USDA-certified organic and made with 100% whole grain oats. In 1994, Quaker Oats acquired the fruit drink company Snapple. 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. Several changes in. 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. I was always as keen to get the new products to market as Mike and Ken were, says Peltz. The Quaker Oats trademark was registered in 1877 by Henry Parsons Crowell (1855-1944), an Ohio milling company owner who in 1891 joined with two other millers . Even now, mere mention of Quaker Oats acquisition of Snapple causes veteran deal makers to shudder. smaller yet more publicized deal - the acquisition of Snapple - that will go down as Smithburg's, and Quaker's, costliest mistake. The merger of the legendary Walt Disney and "everything-we-create-kids-adore" Pixar was a match made in cartoon heaven. The company changed its name to Quaker Foods and Beverages after being acquired by PepsiCo, Inc., in 2001. LERRO v. Matsushita couldn't make the prim and proper Japanese corporate culture work with the Joe Hollywood culture of MCA.''. ''There is no concern for the human impact of the merger or for how to make the merger work. Cadbury paid $1.45 billion for Snapple and a number of other Triarc brands, including Royal Crown, Mistic, and Stewarts. The Quaker Oats has acquired in 2 different US states. 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. Rather, Quakers failure can be put down to a fatal mismatch between brand challenge and managerial temperament. a) the accounts payable. Other acquisitions that went sour include: * December 1996: AT&T; Corp. spins off its NCR unit, valued at $3.4 billion, considerably less than the $7.48 billion AT&T; paid for the computer company in 1991. When they released their results, they said (via Business Insider) that among the foods that tested positive for the chemical were Quaker Oats. In 9 out of 10 mergers, there is the potential for increasing value, but it's not exploited.''. Quaker Oats management needs to decide what to do in light of these recent events. Cultural concerns exacerbated integration problems between the various business functions. So before committing to a deal, dont just consider a brands sales. Like A.T.&T., International Business Machines tried to blend telecommunications and computers in 1984 when it acquired the Rolm Company, an innovative Silicon Valley concern, for $1.5 billion. He does have a name, though, and according to The Wall Street Journal, company insiders call him Larry. Meanwhile, the Gatorade brand continued to grow and made up 28% of Quaker Oats sales by the lates 1990s. Triarc is run by Nelson Peltz and Peter May, two financiers who rose to prominence in the 1980s by buying companies with the help of former junk bond king Michael Milken. 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. A merger or acquisition is when two companies come together to take advantage of synergies. 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. He got a complete overhaul in the 1970s, to a blue-and-white logo that, frankly, is very 70s. You've seen the Life Cereal commercials where we learn "Mikey likes it." Unfortunately, the synergies did not materialize and [Snapple] did not grow at the rate we anticipated.. Investors who thought $14 too low could refuse to tender, vote against the merger, and demand appraisal under 262 of the Delaware Corporation Law. I knew Mike and Ken would make mistakes, Peltz says. What did Disney actually lose from its Florida battle with DeSantis? Several changes in management, including hiring the executive who turned Poland Spring water into a national brand, did nothing to reverse the trend. 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. - 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. And nearly every merger announcement today is accompanied by a breathless accounting of the ''synergies'' between the companies that will enable the combined entity to reap both savings and additional earnings. Before the merger, Sprint catered to the traditional consumer market, providing long-distance and local phone connections, and wireless offerings. How about it, do you remember eating those as you watched your Saturday Morning Cartoons? Robert D. Stuart, Jr. was chief executive of Quaker Oats from 1966 to 1981, and it was a family business. Anyone can read what you share. 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. 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. Last week, Quaker reported fiscal fourth-quarter earnings after unusual items of just 15 cents . Give some thought as well to its soul. Or how about Life Cereal? 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. 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. Brand meanings and associations arise as a kind of found consensus between what the marketer wants and what the consumer has use for. In 1993, Quaker paid $1.7 billion for the Snapple brand, outbidding Coca-Cola, among other interested parties. Why the Quakers? After years of in-fighting, Quaker Oats was finally formed in 1901. 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. 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. 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. 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