Quaker Oats - Snapple Acquisition Analysis

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The Pursuit of Synergy:
Quaker Oats-Snapple Acquisition

Professor Sherif A. Ebrahim
Corporate Strategy, Spring 2012
May 1, 2012

Pauline Guittard
Linn Gustafsson
T.J. Henry Jr.
Sevinc Ulu
Brittany Williams

Many successful businessmen and women have concluded that the most successful acquirers are also the most disciplined. In order to secure a lucrative and profitable acquisition all strategic alternatives ought to have been considered and prudently explored. Furthermore, a clear operating strategy post-acquisition is something that must be in place pre- acquisition. Despite this notion, many acquisitions seem to be driven by an urge to generate synergy, without any specific operating strategies in place. For example, Quaker Oats acquired the ice-tea and juice drink producing Snapple in 1994 to a price of $1.7 billion, an acquisition where all strategic alternatives was not considered. The Snapple acquisition provides several great examples of what could have been done differently. This examination discusses both companies internal goals pre-acquisition, the underlying reasons why Quaker Oats decided to acquire Snapple and which bias-traps Quaker Oats fell victim to when deciding to acquire Snapple. In addition, an exploration of the reasons why the acquisition failed, effects post-acquisition, and future recommendations will also be included.

Internal Goals and Company Mentality Pre-Acquisition
In order to fully understand and appreciate the underlying reasons why companies engage in acquisitions, it is crucial to explore the internal goals, structure, and underlying mentality of the companies involved pre-acquisition. First, Quaker Oats, one of the most widespread American food companies, has focused on diversification since its foundation in 1901. Quaker Oats expanded from the cereal industry into food, groceries and toys. This diversification trend continued when William D. Smithburg accepted the role as the CEO in 1979. Smithburg diversified into clothing and optical industries along with a new, cutting-edge program that aimed to streamline their production through chain management. With this diversification spirit in mind, Quaker Oats acquired Stokely-Van Camp in 1983. Stokely-Van Camp, the producers of Gatorade, proved to be a truly successful acquisition. According to Smithburg “had we not bought Gatorade in the 1980´s, Quaker would not have existed beyond that time”. At the time, Gatorade was the golden goose of Quaker Oats, and continues success as a brand today with an 80 percent market share.

On the other side of our analyzed acquisition is Snapple. Snapple was founded in 1972 under the name “Unadulterated Food Products, Inc”. The three founders, Arnold Greenberg, Hyman Golden and Leonard Mash began selling healthy fruit drinks to local food stores in the Greenwich Village in New York. However, the major success of the company came with the introduction of Snapple’s iced tea drink, in 1987. This success caught the attention of the Thomas H. Lee Company of Boston who purchased Snapple in 1992 and took it public in 1993. Thomas H. Lee decided to focus heavily on advertising in order to create a unique Snapple image. The main focus in their advertising campaigns was a focus on “customer relations, regular people”. Snapple wanted to create a fun image that suited the lifestyle of regular people. Another distinct feature of Snapple was the employee loyalty and aggressive distribution strategy that they put in place. Snapple focused heavily on a network of independent distributors, allowing the distributors to sell additional brands other than Snapple. In addition, Snapple also focused on a people oriented management style, putting the individual employee in focus. Quaker Oats and Snapple had two distinctively different mentalities and strategies in place pre-acquisition. Quaker Oats was prominently focused of diversification and growth with a large corporate mentality. This was in...
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