By most accounts, the combination of Quaker and Snapple should make for a smooth blend. Snapple, founded as Unadulterated Food Products in 1972, brings to the table a knack for developing tantalizing flavors. It revolutionized the beverage industry in 1987 by introducing the first ready-to-drink iced tea to be brewed hot instead of mixed from cold concentrate. It also made a name for itself with such concoctions as Mango Madness and Kiwi Strawberry. Quaker will benefit from Snapple’s distribution stronghold in delicatessens and mom-and-pop shops. Snapple, meanwhile, gains Quaker’s expertise in international marketing and supermarket distribution. Says Jesse Meyers, editor of Beverage Digest, ““The [deal] is a textbook example of why two companies should get together.''
But investors who bought the stock at a premium have a sour taste in their mouths. The biggest losers are those who arrived too late to the tea party after Snapple went public in 1992. One complaint filed last week in Delaware’s chancery court argues that the Quaker offer is substantially below Snapple’s high of $32.25 per share. The deal is ““wrongful, unfair and harmful’’ to Snapple’s public stockholders, it says, and denies them the ““right to share appropriately’’ in profits and earnings. Snapple officials declined to comment. But analysts say the majority stockholders (Snapple founders, together with the Thomas H. Lee company and ML-Lee Acquisition Funds, own 68 percent of the company) did not negotiate a fire-sale price. In fact, some say that investors are popping their tops without reason. Snapple’s third-quarter earnings, which were announced at the same time as the sale, fell 74 per-cent from the same period last year. ““Given Snapple’s declining growth, the stock was much more likely to go down than up,’’ says Hambrecht & Quist analyst Jean-Michel Valette.
Can Quaker add new fizz to Snapple’s sales? Competition is already making that prospect difficult. Coca-Cola’s Fruitopia, Pepsi and Unilever’s Lipton iced teas and trendy boutique brands like Arizona Iced Tea have begun to siphon away some of Snapple’s market share. What investors have forgotten is that the recipes for Snapple’s drinks are not exactly classified. ““It doesn’t take a lot of technology to dump a little colored water into a glass bottle,’’ says Scott Black, president of Delphi Management Inc. Investors who thought they had bought into an ingenious product, in fact, may want to take a look at a newly released book called ““More Top Secret Recipes.’’ There, on page 80, is the blueprint for Hyman, Leonard and Arnold’s $130 million formula. The key instructions: ““Boil water, add tea bags, let brew, and add sugar.''
