Profitable Growth by Acquisition 569What doomed the Quaker-Snapple deal? One factor was haste. Quaker
was so worried about becoming a takeover target in the rapidly consolidating
food industry that it ignored evidence of slowing growth and decreasing prof-
itability at Snapple. The market’s concern was ref lected in Quaker ’s stock price
drop of 10% on the acquisition announcement. In spite of this, Quaker ’s man-
agers proceeded, pushing the deal through on the promise that Snapple would
be the beverage industry’s next Gatorade. This claim unfortunately ignored the
realities on the ground: Snapple had onerous contracts with its bottlers, fading
marketing programs, and a distribution system that could not support a national
brand. There was also a major difference between Snapple’s quirky, off beat
corporate culture and the more structured environment at Quaker.
Most importantly, Quaker failed to account for the possible entrance of
Coca Cola and Pepsi into the ready-to-drink tea segment—and there were few
barriers to entry—which ultimately increased competition and killed margins.
Disaster Deal No. 3The 1998 $130 billion megamerger between German luxury carmaker Daimler-
Benz and the #3 U.S. automobile company, Chrysler Corporation, was univer-
sally hailed as a strategic coup for the two firms. An official at a rival firm
simply said “This looks like a brilliant move on Mercedes-Benz’s part.”* The
stock market agreed as the two companies’ shares rose by a combined $8.6 bil-
lion at the announcement. A 6.4% increase in Daimler-Benz’s share price ac-
counted for $3.7 billion of this total. The source of this value creation was
simple: There was very little overlap in the two companies’ product lines or ge-
ographic strengths. “The issue that excites the market is the global reach,” said
Stephen Reitman, European auto analyst for Merrill Lynch in London.* Daim-
ler had less than 1% market share in the U.S., and Chrysler ’s market share in
Europe was equally miniscule. There would also be numerous cost-saving op-
portunities in design, procurement, and manufacturing.
The deal was billed as a true partnership, and the new firm would keep
operational headquarters in both Stuttgart and Detroit and have “co-CEOs”
for three years after the merger. In addition, each firm would elect half of the
directors.
Af termath:By the end of 2000, the new DaimlerChrysler ’s share price
had fallen more than 60% from its post merger high. Its market capitalization
of $39 billion was 20% less than Daimler-Benz’s alone before the merger! All
of Chrysler ’s top U.S. executives had quit or been fired, and the company’s
third-quarter loss was an astounding $512 million. As if all of this weren’t bad
enough, DaimlerChrysler ’s third-largest shareholder, Kirk Kekorian, was suing
the company for $9 billion, alleging fraud when they announced the 1998 deal
as a “merger of equals.”* “Auto Bond: Chrysler Approves Deal With Daimler-Benz,”The Wall Street Journal,
May 7, 1998.