Quaker Oats Company and Snapple Beverage Company
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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 cost-cutting seemingly the only way to positively impact the bottom line. Furthermore, an increasing number of consumers and businesses began to favor newly constructed wide-lane highways.
The Penn Central case presents a classic case of post-merger cost-cutting as “the only way out” in a constrained industry, but this was not the only factor contributing to Penn Centrals demise. 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 combination, culture clash, territorialism and poor execution of plans to integrate the companies differing processes and systems. (Learn why a merger and acquisition advisor is often the best choice when selling companies in Owners Can Be Deal Killers In M&A.)
Quaker Oats Company and Snapple Beverage Company
Quaker Oats successfully managed the widely popular Gatorade drink and thought it could do the same with Snapple. In 1994, 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. In addition to overpaying, management broke a fundamental law in mergers and acquisitions: make sure you know how to run the company and bring specific value-added skills sets and expertise to the operation. 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. By the time the divestiture took place, Snapple had revenues of approximately $500 million, down from $700 million at the time that the acquisition took place. (Read Mergers And Acquisitions: Break Ups to learn how splitting up a company can benefit investors.)