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. Quakers executives approached the Snapple deal with a mixture of confidence and urgency. Expert Help. 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. Acutely aware of the make-or-break nature of the acquisition, Quakers executives formulated a marketing plan that sought to minimize or eliminate risk. It identifies the three major reasons for the failure as distribution problems, stagnant industries, and rival wars. You've seen the Life Cereal commercials where we learn "Mikey likes it." It must end, Drugmaker Eli Lilly to slash insulin prices, Stocks slip as stubborn inflation raises rate expectations, TikTok to set default daily time limit of 60 minutes for minors, Column: While workers struggled during the pandemic, CEO pay went up, up, up, The chance of a lifetime: Five friends ski the tallest mountain in Los Angeles, Shocking, impossible gas bills push restaurants to the brink of closures, Review: A reimagined Secret Garden fails to flower anew at the Ahmanson Theatre, High school basketball: Southern California and Northern California Regional results and updated pairings, Column: Supreme Court conservatives may want to block student loan forgiveness. The price tag to acquire Snapple was $1.7 billion, considered by many to be an astronomical sum. The big idea is important, but the execution of the big idea determines its success or failure. 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. 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. 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. 1. 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. Last week, Quaker reported fiscal fourth-quarter earnings after unusual items of just 15 cents . So, there you have it. Question: POML5) A principal reason . Major transactions seem to hit the . In August 2005, Sprint acquired a majority stake in Nextel Communications in a $37.8 billion stock purchase. 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. Quaker Oats had teamed up with researchers from MIT for three experiments involving 74 boys between the ages of 10 and 17. a) the accounts payable. Introduction Abstract Issues Issue #1: Distribution Issue #1: Alternatives and Recommendations Beacon Press, 2014. We didnt have a lot else to tell them. A vertical merger is the merger of two or more companies that provide different supply chain functions for a common good or service. But, are they? In 1997, Quaker sold Snapple to Triarc Beverages for $300 million, a price most observers found generous. 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. Sources: Bloomberg News; Times and wire reports. It was done by Haddon Sundblom, who also did the Santa Claus illustrations for Coca-Cola. Quaker is serving up wholesome goodness in delicious ways from Old Fashioned Oats, Instant Oats, Grits, Granola Bars, etc. Libraries-Penn State University. systems management. Even with the growth of competition in the "Alternative beverage" category, Snapple remained steady at 30-40% of market share. 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. Quaker Oats Co. announced yesterday that it will buy Snapple Beverage Corp. for $1.7 billion in cash, ending weeks of speculation that the iced tea producer was going to be acquired. 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. "Pennsylvania Railroad and New York Central Railroad Records, 1853-1965. Early in the merger, the two companies maintained separate headquarters, making coordination more difficult between executives at both camps. As each of Quakers initiatives failed or backfired, Snapple sales lost steam. 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. Nor do I think it was a case of a nimble upstart outflanking a lumbering corporate behemoth. Novell is not alone. 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. PURCHASE OF GATORADE IN 1983<br> 5. 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. In such a commoditized business, the company did not deliver on this critical success factor and lost market share. Huge rivals, such as Coca-Cola Co. and PepsiCo Inc., charged into the market with new products. This still left a considerable chunk of destroyed equity value, however. I would explain it differently: First, as every brand manager would surely agree, good brand management is explained more by process than by strategy. - Acquisition of Snapple by Quaker Oats, 1994. In 1995 sales dropped to $610 million. 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. That covers development cost. "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. ", University of Pennsylvania-Knowledge@Wharton. Wall Street had warned saying that the amount is excessive, to acquire a company. 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. How about it, do you remember eating those as you watched your Saturday Morning Cartoons? On the day the merger was announced formally, both the companies registered a fall in share prices. Why did the brand lose $1.4 billion in value under Quakers stewardship in just four years? 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. At the time, Snapple was still run by the three founders of the company. Enter Quaker Oats. 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. 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. Part of it was selfishnesswe liked the stuff so much we wanted to get it into our offices. Ferdinand Schumacher was one of those founders, and he immigrated to the United States from Germany in 1851. The Quaker Oats Company took a different and surprising role in the war effort. Triarcs gleeful experimentalism restored it. It has happened to corporate giants and high-technology start-ups alike, including I.B.M., Xerox, General Motors, Sony, General Electric and Novell. 2 In addition to overpaying,. 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. Sales, which had been declining 20% a year, turned flat within three months of Triarcs purchase. They would finance the movie, a major film studio would release it, then they would create their own candies based on the ones in the film and that's exactly what happened. Below, we look at some the worst mergers and acquisitions undertaken by large corporations, and how the good times went bad. Its not that they didnt know the other terminology. Quakers efforts to take the risk out of Snapples publicity were equally ill-fated. Complaint at 34. * 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. Some brands just want to have fun, and from birth Snapple was one of them. Now that's a mouthful you can simply enjoy. Quaker said Snapple just didnt work out as planned. From the very start, Quaker Oats has been built by its marketing perhaps more so than most companies. 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. We perceive them as the opportunity. 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. AOL had arrogant and aggressive employees while Time Warner had corporate and staid employees. Despite protracted negotiations with individual distributors and distributor councils, no channel rationalization was achieved. 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. Not only did they have to convince people to eat oats in the first place, but they had to get them to prepare it in a way that would taste good and keep them coming back. Now, how about a trip down memory lane? There's something undeniably wholesome about Quaker Oats. These include: Managers at both entities need to communicate properly and champion the post-integration milestones step by step. Bizarre? But Snapple isnt about accomplishing an objective; its about adding a little whimsy to the humdrum and the everyday. After buying Snapple for $1.7 billion, Quaker Oats immediately started losing money. Other acquisitions that went sour include: *. The company wasted no time trying to implement this strategy: Distribution would be rationalized, Snapple flavors would be made widely available in supermarkets, and a coordinated national promotion effort would expand mainstream awareness of the brand beyond the two coasts. Triarc is a New York-based company that owns the Arbys fast-food restaurant chain and several soft drink brands, including Royal Crown and Diet Rite. After years of in-fighting, Quaker Oats was finally formed in 1901. DEAL VALUATION Quaker paid $1.7 billion to acquire Snapple in December 2004. 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. According to Marketing Lens, though, they've always dabbled in other products like pet food and even clothing. The question is whether they are going to pick it up a second time, and the distributors tell us pretty quickly whether thats happening. We didnt think much about itit didnt seem like taking chances. SBC was founded by Leonard March, Hyman Golden and Arnold Greenburg in . 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. ", United Press International. When you think of Quaker Oats, you think of their oats and their cereal products, right? Given the difference between the two brand identities, its no surprise that they didnt both thrive under the same owner. 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. Variations in temperament go a long way toward explaining why brands that flourish in the care of one custodian wither in another. Stern took his revenge by subjecting Quaker to months of on-air diatribes that urged listeners to stay away from Crapple.. Triarcs efforts to win them back began as soon as the purchase from Quaker was complete. The convenience factor got people interested, and Schumacher went on to figure out a way to make them cook faster. Respected executives at both companies sought to capitalize on the convergence of mass media and the Internet. Of course, the resultant declines in service only exacerbated the loss of customers. 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. But a marketing professional would probably explain the improved fit in terms of distribution economies or manufacturing synergies. According to the US Army Corps of Engineers, they manufactured bombs, artillery, and ammunition ultimately sent to the Pacific theater. He retired in April 2020. Do Not Sell or Share My Personal Information. Triarc officials estimate that the Snapple brand was worth $900 million to $1 billion of that total, but no separate accounting was officially made. 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. Analysts said that Quaker had paid too much for Snapple in the first place and that the purchase was plagued by bad timing. Stern was an especially effective spokesperson. In 1994, grocery store legend Quaker Oats . The group dissolved after Pearl Harbor, Stuart enlisted in the Army, and served in Europe. However, as its dial-up subscribers dwindled, Time Warner stuck to its Road Runner Internet service provider rather than market AOL. Gatorade is in the sports drink segment, while Snapple is in the alternative beverage space. An acquisition is a corporate action in which one company purchases most or all of another company's shares to gain control of that company. What did Triarc do with such apparently effortless grace that Quaker, with all its resources, could not? ", United States Department of Justice. You could have fun with Gatorade, but only after youd won the game. 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 . 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. Limited economies of scope are one reason. The executives viewed them as experiments that were practically cost free. Our distributors buy a couple of hundred thousand cases of anything with the Snapple name on it because people are interested to try our latest thing, explains Weinstein, who now runs the Snapple operation for Cadbury Schweppes. Just think of where some of these companies could have better invested that money. 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. In effect, Triarc let its distributors do its market research. To Quaker, new products were seen as a risk. The once-profitable Kidder lost more than $300 million in 1994, and the following year General Electric took a charge of $917 million after it sold most of Kidder to the Paine Webber Group. 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. Patrick specialty dyes and chemicals businesses. Oatmeal has come a long way as far as reputation is concerned. Check out the amazing oat recipes that goes beyond breakfast. "Form 10-Q for the Quarterly Period Ended September 30, 2005. But there was a catch. The military needed a cheap way to feed a lot of people, and soldiers across the country were introduced to the idea they could eat their horses' oats. . '', See the article in its original context from. But theyve hit a snag, A $150,000 executive protection dog? You can learn more about the standards we follow in producing accurate, unbiased content in our, 4 Cases When M&A Strategy Failed for the Acquirer (EBAY, BAC). We promised them Wendys Tropical Inspiration; we promised that we were going to listen to what they wanted and change the way business was done. While these challenges befuddled Quaker Oats, gargantuan rivals Coca-Cola (KO) and PepsiCo (PEP) launched a barrage of new competing products that ate away at Snapple's positioning in the beverage market. Done to avoid controversy, the terminations inflamed it instead. Smithburg, who received no bonus over his $872,506 salary last year, declined to comment. The familiar logo just the Quaker Man's head didn't show up until 1956, and for a short time, he was black-and-white. It used its leverage with supermarkets to win premium display space and squeezed costs out of the supply chain. When they bought Snapple in 1994, the acquisition made them the third largest beverage company on the continent (behind Coca-Cola and PepsiCo). Quaker Oats successfully managed the widely popular Gatorade drink and thought it could do the same with Snapple's popular bottled teas and juices. 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. In 2002, the company reported an astonishing loss of $99 billion, the largest annual net loss ever reported, attributable to the goodwill write-off of AOL. The Quaker Oats' largest acquisition to date was in 1994, when it acquired Snapple Beverage for $1.7B. The reasoning was twofold. They werent about to give up the supermarket accounts theyd worked for years to win. 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. The company started running ads whose mainstream blandness and slick production values were antithetical to Snapples image. ''There's no strong correlation between price premiums or strategic relatedness and the success of a deal,'' Mr. Smith said. 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. It took Novell Inc. only 22 months to discover that there were few ''synergies'' or ''earnings'' accompanying its acquisition of Wordperfect in 1994 in a stock swap worth $885 million. Study Resources. It has also divested 2 assets. And on their own, oats are definitely a smart thing to add to your diet. In 1940, Stuart helped found America First, one of the largest anti-war groups in the country's history. There's a long-standing belief that he's the founder of Pennsylvania, William Penn. Its earnings have been disappointing and Wall Street is wondering whether the company will be able to remain independent. 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. 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. Maybe it's just that you've probably always had a canister in the cupboard, or it might have something to do with the fact that it's the perfect breakfast for cold winter mornings. They also need to be attuned to the target company's branding and customer base. The company changed its name to Quaker Foods and Beverages after being acquired by PepsiCo, Inc., in 2001. Operations Management questions and answers. And Quaker couldnt force them to. 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. From their 1994 peak, sales declined every year, plunging to $440 million in 1997. 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. Other titles included (via AtariAge) names like Eggomania, Picnic, Piece o' Cake, and Name This Game, and it just goes to show that not every business venture is a good one. How many times have you started your day with a piping hot bowl of Quaker oatmeal? In a battle between David and Goliath, the smart money is almost always on the giant. This can help an M&A deal be successful. Other breakfast foods were also found to contain the weed-killer chemical, like Cheerios and Lucky Charms. The Willy Wonka line of candy was launched alongside the movie, but there were difficulties. consulting firms. Definition, Meaning, Types, and Examples, What Is Horizontal Integration? What did Disney actually lose from its Florida battle with DeSantis? 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. We believed Snapple had tremendous possibilities, Quaker spokesman Mark Dollins said. 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. For good reason. The two combined to become the third-largest telecommunications provider, behind AT&T (T) and Verizon (VZ). When finalizing an M&A deal, it is often beneficial to include language that ensures that current management stays on board for a certain period of time to ensure a smooth transition and integration since they are familiar with the business. Around this time, the race to capture revenue from Internet search-based advertising was heating up. In 2003, amidst internal animosity and external embarrassment, the company dropped "AOL" from its name and became known as Time Warner. Presented by : 1 Prateek Rajpal PEPSICO PepsiCo Inc. is an American multinational corporation headquartered in New York, United States, with interests in the manufacturing, marketing and distribution of grain-based snack foods, beverages, and other products PepsiCo was formed in 1965 with the merger of the Pepsi-Cola Company and Frito-Lay, Inc. PepsiCo has since expanded from its . Quaker Oats Morrison reviving Quaker after the Snapple debacle- cost $1.4 B write-off Focus on Gatorade. When it first purchased Snapple . With a $35 billion price tag, the merger did not pay off. The marketing teams enthusiasm was contagious, and the distributors responded by urging retailers to take on a little more Snapple. This paper discusses why the hyped-up merger of food giants, Quaker Oats and Snapple Beverages, was doomed to fail from the start. 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. 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. 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. 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The Pacific theater fun, and how the good times went bad in such a commoditized business, the companies. Debacle- cost $ 1.4 B write-off Focus on Gatorade Nextel Communications in a battle between David and Goliath, race! 10-Q for the Quarterly Period Ended September 30, 2005 losing money smart thing to add to your.. Premium display space and squeezed costs out of Snapples publicity were equally ill-fated excessive, to a., declined to comment resources, could not the failure as distribution problems, stagnant industries, and served Europe... A price most observers found generous no surprise that they didnt both thrive the...