568 Making Key Strategic Decisions
and $20 billion of annual long-distance telephone revenues, along with the
NCR acquisition, would guarantee the company’s success in the PC business.
They were confident enough to increase their original offer price by $1.4 bil-
lion. The problem was that by this time, PCs had become a commodity and
were being assembled at low-cost around the world using off-the-shelf compo-
nents. Unlike the microprocessor and software innovations of Intel and Micro-
soft, AT&T’s research skills held little profit potential for the PC business.
AT&T hoped to use NCR’s global operations to expand their core telecom
business. But NCR’s strengths were in developed countries, whereas the
fastest-growing markets for communications equipment were in developing
third-world regions. And in many companies, the computer and telephone sys-
tems were procured and managed separately. Thus, the anticipated synergies
never materialized.
Finally, the two companies had very different cultures. NCR was tightly
controlled from the top while AT&T was less hierarchical and more politically
correct. When AT&T executive Jerre Stead took over at NCR in 1993, he
billed himself as the “head coach,” passed out T-shirts, and told all of the em-
ployees they were “empowered.” This did not go over well in the conservative
environment at NCR, and by 1994, only 5 of 33 top NCR managers remained
with the company.
Disaster Deal No. 2
Throughout 1994, Quaker Oats Co. was rumored to be a takeover target. It was
relatively small ($6 billion in revenue) and its diverse product lines could be
easily broken up and sold piecemeal. In November, Quaker announced an
agreement to buy iced-tea and fruit-drink maker Snapple Beverage Corp. for
$1.7 billion, or $14 per share. CEO William Smithburg dismissed the 10%
drop in Quaker ’s stock price, arguing “ We think the healthy, good-for-you
beverage categories are going to continue to grow.” The hope was that Quaker
could replicate the success of its national-brand exercise drink Gatorade,
which held an extraordinary 88% market share.
Snapple, which had 27% of the ready-to-drink tea segment was distrib-
uted mainly through smaller retail outlets and relied on off beat advertising
and a “natural” image to drive sales. Only about 20% of sales were from super-
markets where Quaker ’s strength could be used to expand sales of Snapple’s
drinks.
Af termath:In April 1997, Quaker announced it would sell Snapple for
$300 million to Triarc Cos. Quaker takes a $1.4 billion write-off and the sale
price is less than 20% of what Quaker paid for Snapple less than three years
earlier. Analysts estimated the company also incurred cash losses of approxi-
mately $100 million over the same period. Ending a 30-year career with the
company, CEO Smithburg “retires” two weeks later at age 58.