Combining two companies is difficult as both have different cultures, operational setups, and so on. Several changes in management, including hiring the executive who turned Poland Spring water into a national brand, did nothing to reverse the trend. In a battle between David and Goliath, the smart money is almost always on the giant. I would explain it differently: First, as every brand manager would surely agree, good brand management is explained more by process than by strategy. They say that he's not an actual person, but that he was chosen as a representative of the Quakers. Times staff writer Nancy Rivera Brooks contributed to this report. They got their medical testing done, MIT got their results it was a win-win. 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. 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. We see it all the time now, thanks to their 1891 idea. systems management. Its not that they didnt know the other terminology. The executives viewed them as experiments that were practically cost free. ", United Press International. Timothy Li is a consultant, accountant, and finance manager with an MBA from USC and over 15 years of corporate finance experience. There's something undeniably wholesome about Quaker Oats. Sounds great, right? Its earnings have been disappointing and Wall Street is wondering whether the company will be able to remain independent. There's nothing like the comforting taste of nostalgia first thing in the morning, right? If you're looking to grab some Quaker Oats for a super healthy breakfast, get the plain ones and dress it up yourself. To Quaker, new products were seen as a risk. 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. 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. By the time Triarc came on the scene, they had virtually given up on the brand and were putting their energies into other companies products. Quakers losses from Snapple actually exceeded the $1.4-billion difference between what it paid for Snapple and its sale price. However, time and again, executives face major stumbling blocks after the deal is consummated. 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. Proclaiming the magic is back, the marketing team convened a meeting of the distributors. POML5) A principal reason for the failed merger effort between Quaker Oats and Snapple was. 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. Chicago-based Quaker has said that Snapple failed to catch on in middle America and last year pulled the drink line out of several markets. Definition, Meaning, Types, and Examples, What Is Horizontal Integration? 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). AOL missed out on these and other opportunities, such as the emergence of higher-bandwidth connections, due to financial constraints within the company. In one, tennis star Ivan Lendl garbled the brand name into Shnahpple Several others featured a Snapple order-processing clerk named Wendy Kaufman. Robert D. Stuart, Jr. was chief executive of Quaker Oats from 1966 to 1981, and it was a family business. 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. There's a long-standing belief that he's the founder of Pennsylvania, William Penn. In 1968, the New York Central and Pennsylvania railroads merged to form Penn Central, which became the sixth-largest corporation in America. Additionally, AOL executives realized that their know-how in the Internet sector did not translate to capabilities in running a media conglomerate with 90,000 employees. When the headquarters was expanded through a wall into the offices next door, Weinstein threw a sledgehammer party. Quaker Oats had teamed up with researchers from MIT for three experiments involving 74 boys between the ages of 10 and 17. 1Prince, Greg, "Come Together," Beverage World, December 1995, p. 50-54. 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. There was no such mismatch between Gatorade and Quaker. But in true Triarc fashion, no one asked a consultant. 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. The effective premium to market valuation was 3.00%. ", U.S. Securities and Exchange Commission. ''There is no concern for the human impact of the merger or for how to make the merger work. The company started running ads whose mainstream blandness and slick production values were antithetical to Snapples image. In 2001, America Online acquired Time Warner in a megamerger for $165 billion; the largest business combination up until that time. U.S. Securities and Exchange Commission. 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. The QO Ordnance Company was a subsidiary of Quaker Oats, and they oversaw ammunition plants in Nebraska. On the day the merger was announced formally, both the companies registered a fall in share prices. Quaker Organic Instant Oatmeal is USDA-certified organic and made with 100% whole grain oats. It became a part of pop culture and television history in spite of the naysayers. Other problems included poor foresight and long-term planning on behalf of both companies' management and boards, overly optimistic expectations for positive changes after the merger, culture clash, territorialism, and poor execution of plans to integrate the companies' differing processes and systems. Fresh from their success with Gatorade, Quaker Oats wanted to make Snapple drinks just as . Rolm gained market share and lost money, prompting I.B.M. If management cannot find a clear path in uniting both companies then an M&A will fail. Quaker & Snapple In 1994, grocery store legend Quaker Oats acquired the new-kid-on-the . 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. If it doesnt work, then the very worst that can happen is that you end up with a little excess inventory that you have to discount. 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 market response to the successive changes in tone at Snapple highlights a process that my Harvard Business School colleague Susan Fournier calls the co-construction of meaning. Consumers did just as much as Arnie Greenberg or the Triarc team to form Snapples brand identity. Smithburg, who received no bonus over his $872,506 salary last year, declined to comment. smaller yet more publicized deal - the acquisition of Snapple - that will go down as Smithburg's, and Quaker's, costliest mistake. In 1997, Quaker sold Snapple to Triarc Beverages for $300 million, a price most observers found generous. In effect, Triarc let its distributors do its market research. Triarcs efforts to win them back began as soon as the purchase from Quaker was complete. It used its leverage with supermarkets to win premium display space and squeezed costs out of the supply chain. 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. 1. Beacon Press, 2014. 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. This case looks at the purchase of Snapple in 1994 by Quaker Oats. Musks master plan for Tesla is built around sustainable energy economy, What to expect from Elon Musks third master Tesla plan, Before and after photos from space show storms effect on California reservoirs, Dramatic before and after photos from space show epic snow blanketing SoCal mountains, Yet more rain expected to hit California in March. When you think of Quaker Oats, you think of their oats and their cereal products, right? 2 In 1998 The Quaker Oats Company owned four other brands that led their respective categories: Gatorade thirst . Some brands just want to have fun, and from birth Snapple was one of them. According to Marketing Lens, though, they've always dabbled in other products like pet food and even clothing. Wall Street had warned saying that the amount is excessive, to acquire a company. 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. By 1994, Snapple was available across the country, and as distributors added painstakingly cultivated supermarket accounts, sales ballooned to $674 million from just $4 million ten years earlier. 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. Acquisition indigestion is a slang term that describes the difficulties that a company can face implementing a merger or acquisition. A key component of the strategy was to use the strength of Snapples distributors in the cold channel to help Gatorade and use Gatorades strength in the warm channelthat is, supermarketsto help Snapple. Chicago-based Quaker, which . * October 1994: General Electric Co. sells Kidder, Peabody & Co. to rival brokerage house PaineWebber Group for stock valued at $670 million. Operations Management questions and answers. Most of those have a ton of added sugar, and even ones that sound like they should be healthy can come with some not-so-great ingredients. Or how about Life Cereal? - 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. 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. "Form 10-Q for the Quarterly Period Ended September 30, 2005. 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. Snapple's previously popular advertisements became diluted with inappropriate marketing signals to customers. There's a heated debate going in the scientific community about just how dangerous glyphosate is. They could say they were low-fat, for example, but they couldn't say they helped manage cholesterol. 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. 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. The team understood the need to stay away from big risky ideas. Horizontal integration is the acquisition, merger, or expansion of a business that increases the market share in its existing industry. These include white papers, government data, original reporting, and interviews with industry experts. . Expert Help. We believed Snapple had tremendous possibilities, Quaker spokesman Mark Dollins said. And finally, the politicized and turf-protecting culture of Time Warner made realizing anticipated synergies that much more difficult. Snapple, based in East Meadow, N.Y., is a leader in the U.S. ready-to-drink iced tea and fruit-juice drink markets. The game featured a house with a yard and three rooms, and a total of 20 different places you could pick to hide. The brand received on-air endorsement and was often the topic of the two radio hosts' banter. Quaker Oats-Snapple example. These days his happy visage seems oddly inappropriate. Timothy has helped provide CEOs and CFOs with deep-dive analytics, providing beautiful stories behind the numbers, graphs, and financial models. At the time, AOL was the leader in dial-up Internet access; thus, the company pursued Time Warner for its cable division as high-speed broadband connection became the wave of the future. Nextel was too big and too different for a successful combination with Sprint. The new company risks losing its customers if management is perceived as aloof and impervious to customer needs. 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. 2 In addition to overpaying,. Further, a macroeconomic downturn led customers to expect more from their dollars. Marvin Dumont has 15+ years of experience as a journalist and managing editor. 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. consulting firms. D) none of these above are correct. AOL was bought by Verizon in 2015 for $4.4 billion. "AOL Time Warner to Lose Turner, Posts $99 Billion Loss.". But the spirit of Snapple called for another way of speaking and thinking. Part of the fun for the Triarc team was using themselves as a test market. Due Diligence Case Study 6. 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. As it happened, though, Quakers very risk aversion turned out to be the greatest risk of all. Peltz hired Weinstein and Gilbert for their impeccable professional credentials, and they could have used marketing-speak if they had wanted to. 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. Local railroads catered to daily commuters, long-distance passengers, express freight service, and bulk freight service. 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. U.S., including Quaker Oats, Aunt Jemima, and Cap'n Crunch and Life cereals. Quaker Oats and Snapple no. 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.". 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. Done to avoid controversy, the terminations inflamed it instead. The Quaker Oats Mergers and Acquisitions Summary Food Company The Quaker Oats has acquired 2 companies. 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. Although the merging sounded strategically compelling, the two companies could not manage to merger due to cultural variation. 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. 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 werent about to give up the supermarket accounts theyd worked for years to win. Several changes in. 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. Some processes are best entrusted to managers with cautious, prudent temperaments while others flourish in the hands of risk takers. The Willy Wonka line of candy was launched alongside the movie, but there were difficulties. Their failure with Snapple wasnt a matter of ineptitude or a bureaucratic tin ear. How about it, do you remember eating those as you watched your Saturday Morning Cartoons? The other was that we just thought it was exciting. If wed had a very structured process, forms to fill out, analyses to do, wed have seen the risks, and wed never have moved. So we know Quaker Oats makes all kinds of oatmeal, but here's a fun fact you can pull out at parties the next time someone starts sharing some trivia: they also made video games. 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. It was done by Haddon Sundblom, who also did the Santa Claus illustrations for Coca-Cola. At the time, Snapple was still run by the three founders of the company. 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. Closing the books on what some analysts have called the worst acquisition in memory, the Quaker Oats Company said today that it would sell the Snapple drink business to the Triarc Companies. 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. We started out loving the brand the first day, says Gilbert. We didnt think much about itit didnt seem like taking chances. Its the most fun part of the business. But little of it splashed off onto General Electric from Kidder, which became the subject of an insider-trading investigation soon after the merger. Wonka Bars came a few years later, and Quaker Oats sold that division to Nestle in 1988. The Quaker Oats Company (QOC), founded in 1877, produces a variety of products ranging from oat bars, to rice cakes (History, 2011). What did Triarc do with such apparently effortless grace that Quaker, with all its resources, could not? Why not create a one-stop financial supermarket? Cultural clashes and turf wars can prevent post-integration plans from being properly executed. He retired in April 2020. The Quaker Oats Company's $1.4 billion debacle with Snapple only proves that the well-trod merger road has been paved with unrealized synergies and executive hubris, experts in mergers and acquisitions say. The merger of Quaker and Snapple was considered to be a disaster owing to an incorrect marketing strategy. Then the U.S. government blindsided it, Column: Uber and Lyfts deactivation policy is dehumanizing and unfair. The Sad State of Corporate Innovation See how corporates are failing when it comes to innovation. The Quaker Oats Company took a different and surprising role in the war effort. 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. The Japanese company lost billions before it sold an 80 percent stake in MCA to the Seagram Company. His byline has appeared on Fox News, Forbes, and TheStreet.com. 1. Until Quaker Oats possessed Snapple, it caused them a loss of $1.6 million on a daily basis. 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. In their Complaint, Plaintiffs contended that when negotiations between Quaker and Snapple escalated in and around August 1994, Quaker and Smithburg must have known that its previously stated debt-to-capitalization ratio (also known as "leverage ratio") guideline, the upper-60 percent range, was no longer a realistic possibility. 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. Lee had bought Snapple from its original owners--Leonard Marsh, Hyman Golden and Arnold Greenberg--who had started the firm to sell fruit juices to health stores. Quaker Oats offered $14 in cash for each share of Snapple stock; the merger agreement contemplated the same payment per share. We didnt have a lot else to tell them. Check out the amazing oat recipes that goes beyond breakfast. ''But even Pepsi messed up its restaurant lines. 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. My point here is not to disparage discipline or, indeed, the marketing professionals of Quaker Oats. Gatorade -cash cow - potentially could dry up Pre-Morrison, Quaker mainly riding Gatorade under-investing in food brands Morrison comes in and changes PA: Younger manager presidents - oversee individual product lines such as hot cereal, cold cereal, snacks, and domestically sold Gatorade One of the most striking things about my conversations with Peltz, Weinstein, and Gilbert was the language that the Triarc team used. 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. 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. By clicking Accept All Cookies, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts. When they released their results, they said (via Business Insider) that among the foods that tested positive for the chemical were Quaker Oats. So that cannister of Quaker Oats is going to be a great choice, but less great are those instant packets that come in all kinds of flavors. GE bought Kidder for $600 million in 1986, but had invested an additional $800 million in the firm between the purchase and the sale. Acutely aware of the make-or-break nature of the acquisition, Quakers executives formulated a marketing plan that sought to minimize or eliminate risk. Even now, mere mention of Quaker Oats acquisition of Snapple causes veteran deal makers to shudder. Chicago-based Quaker has said that Snapple failed to catch on in middle America and last year pulled the drink line out of several markets. Many soft-drink brands flourished in the 1980s serving New York's Yuppies, but only Snapple made the big time. 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. 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. 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. 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. 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. AOL had arrogant and aggressive employees while Time Warner had corporate and staid employees. He created rolled oats, and this was about the time the Civil War was kicking off. To disparage discipline or, indeed, the two companies is difficult as have! Do you remember eating those as you watched your Saturday morning Cartoons failed to catch on middle. Splashed off onto General Electric from Kidder, which became the sixth-largest corporation in America has provide... Wall Street had warned saying that the amount is excessive, to acquire a.... 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