Quaker's sale of Snapple ends one of the worst merger flops in history

Weekly Corporate Growth Report, Apr 21, 1997

Quaker Oats Co. has agreed to bite the bullet and sell Snapple Beverage Corp. to Triarc Cos. for $300 million. This move comes only 27 months after Quaker spent $1.7 billion to acquire the maker of the trendy drinks. It doesn't take a number-cruncher to figure out that Quaker did not profit from either transaction. On the contrary, Quaker lost $1.6 million for each day it owned Snapple.

The Triarc acquisition closes the chapter on one of the worst flops in corporate-merger history. The speed at which Quaker's Snapple investment deteriorated is destined to make this deal a special case of mismanagement for an entire generation of business students.

When Quaker purchased Snapple in 1994, it believed the drink had amazing potential. Nevermind that Wall Street said that the price was about $1 billion too much; Quaker Chairman William D. Smithsburg was convinced he could do for Snapple what he had done with Gatorade. It would just take the right marketing strategy.

There were several reasons why his plan flopped. The nation's thirst for drinks like Snapple began to peak just as Quaker bought the company. This caused the markets growth to ease at the most inopportune time. Simultaneously, huge rivals, such as CocaCola Co. and PepsiCo, were unleashing new products to compete against Snapple.

Quaker also shot itself in the foot by initially fumbling its relations with Snapple's independent distributors. It soon realized that its remarkable skills in distribution to supermarkets and mass merchants really meant nothing as far as Snapple was concerned. The drink has more than half of its sales at convenience stores, gas stations and similar outlets.

In 19%, new marketing programs flopped and Quaker dove into a huge free sampling program to get a better understanding of Snapple's market. It replaced its popular ad campaign, featuring Snapple employee Wendy Kaufman, with one that expressed how satisfied the company would be to be in third place behind Coke and Pepsi in the beverage market.

The failure of Snapple in the hands of Quaker claimed the jobs of numerous executives and turned the once illustrious reputation of William Smithsburg to mud. The Quaker board has yet to take away Smithsburg's stock options, but it has eliminated his bonus for the last two years.

Analysts feel Triarc can return Snapple to its regional roots by concentrating on the East and West coasts, where it sells best. Quaker just overestimated itself by thinking it could take this regional brand national or even global. In its defense, Snapple is still a leader in its categories, with annual sales of $550 million, down from $700 million when Quaker bought the company.