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Deals from Hell by Arthur Levitt Jr., Robert F. Bruner

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10
December 1994: The Acquisition of Snapple by Quaker Oats
On November 2, 1994, Quaker Oats announced an agreement to acquire Snapple Beverage Corporation for $1.7 billion, merely two percent more than the closing price a day earlier and 48 percent below Snapple’s high share price of the year.1 Notwithstanding the apparently low acquisition premium, Quaker’s share price fell 9.9 percent on the announcement day, a loss in market value of over $1 billion. Quaker had been rumored to be a takeover target.This acquisition would reduce the likelihood of takeover. Moreover, many observers believed that even at the low acquisition premium, Quaker had paid perhaps $1 billion too much.2
Twenty-nine months later, Quaker announced an agreement to sell Snapple for $300 million and take a $1.4 billion write-off on the sale. In addition to accumulated operating losses and certain tax benefits, analysts estimated that the total undiscounted loss ranged between -$1.2 and -$1.5 billion. Soon afterward, William Smithburg, a 30-year veteran of the firm and CEO since 1979, announced that he would resign. Smithburg’s departure was the last of a string of senior executive resignations and dismissals related to the brand. One reporter3 noted a steady “brain drain” from the company, and low morale in the organization. And in financing the acquisition of Snapple, Quaker sold profitable pet food and candy businesses, which, had they been kept, would have sustained a much higher level of performance for ...

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