|
Editorial Best for Ocean Spray, best for Coke, and best for Cranberries if Coke acquires Ocean Spray 9/17/01
Comment: In view of the tragic terrorist attack: 9/8/01 Stressline believes that acquisition specialists from Coke have been meeting with Robert Hawthorne and top Ocean Spray executives to discuss far more than the sale of Nantucket Nectars. It is in Coke's interest to compete aggressively with Pepsi in the 64 oz. juice category on the juice aisle where Pepsi is poised to expand their Tropicana Twister line exponentially. Simply put, Coke must have a viable label there within a year or they will cede a vital segment of the juice business to their arch rival. Stressline believes this, not because of any inside information, but because this is the only scenario that makes any sense from Coke's perspective, and from a business perspective for Ocean Spray's ultimate survival in the juice business. There is no way that if Coke does not acquire Ocean Spray they will sit idly by while Pepsi grows the Tropicana Twister label. They will develop a new label of their own to compete as only Coke knows how, and before long Tropicana Twister and Coke's entry, probably as a part of their Minute Maid subsidiary, will dominate the 64 oz. section of the juice aisle. How can Ocean Spray Convince its holdout shareholders to vote for a sale? In order to sell Ocean Spray, 75% of the shares must approve a sale. This is a difficult majority to achieve. There are currently a small percentage of shareholders who hold the swing votes, who are convinced that the new management can turn around the company and that Ocean Spray can compete effectively as a stand alone company. More significant, some of these growers feel a loyalty to Ocean Spray that borders on cult-like zealotry of the most irrational kind. Clinically, these are authoritarian personality types who look to father figures to lead them, and they follow them with unquestioning loyalty, like lemmings over a cliff. There may be enough of them to make a difference between a sale or no-sale vote. Since we can't literally deprogram these shareholders, the next best thing is to have their perceived leader, Robert Hawthorne present the facts, logically, point by point, explain how it will benefit them, and endorse the sale. It is also important that the price is too good to refuse. What has been learned by studying members of cults is that they are not stupid. But blind faith is incredibly difficult to sway, but modern cult members are almost always well fed. Therefore low bank accounts may make a difference That's why a hefty selling price may help. First things first. Coke itself won't be an easy sell because any offer has to get by one of the most pragmatic investors in the business world: How can Coke convince Warren Buffett to agree to buying Ocean Spray Coke's biggest shareholder is investment billionaire Warren Buffett. He nixed the purchase of Quaker Oats. Consequently Pepsi owns the number-one sports drink, Gatorade. This has been a boon to Pepsi's overall financial outlook. Whether Buffett believes he made a mistake regarding Quaker is unknown, but we have little doubt he'll be interested in any move Coke makes to expand its all-important juice business. Since Coke must compete against Pepsi both in single serve and in 64 oz. juices, they get a double bargain with Ocean Spray, which also has Nantucket Nectars. They don't really need Nantucket Nectars, since they already own Fruitopia, although it only had a 6.6 share in the last half. The primary buy of course is Ocean Spray and "Cran." These four trademarked letters, along with the wave logo, spell quality to millions of consumers. Put the letters before virtually any other fruit, and with an attractive label and with minimal if any advertising people will try the new product. An Ocean Spray buy gives Coke the option of introducing a new label like Tropicana's Twister (Minute Maid's Fruit Medley for example), but doesn't force them to do so. Buffet's main concern will probably be paying a premium for Ocean Spray because of the holdout growers needed to achieve the 75% super majority. He's used to dealing to corporations whose stockholders behave rationally, not like members of the Heaven's Gate cult removing their sneakers for a trip to the Hale Bopp comet. However, Stressline knows that Coke has done its homework on Ocean Spray and is aware that its shareholders are unique. Thanks primarily to the Stressline Forum, they are able to continually monitor the irrational sentiments of the "true blue" Ocean Spray zealots who believe that despite all evidence to the contrary their tiny $1.4 billion juice company can compete against Coke and Pepsi with their $100 billion plus war chests. This is extremely important, because hard-headed businessmen are loathe to pay a premium for a company because of shareholder sentimentality. Yet because of the way the bylaws are written, the irrational few control the fate of Ocean Spray. What would be needed (besides a good price) in a sale to Coke? This has been restated so many times, it seems tiresome to write it again, but it is necessary to emphasize it again. We are talking about selling the juice company. We are not talking about selling the cooperative. All aspects of fruit receiving would still be grower owned and grower controlled. Another important part of negotiating a sale of the juice company would be a guaranteed very long-term contract for fruit sales. The contract should include a price tied to realistic cost of production, plus a reasonable profit. This is an important reason that Ocean Spray and certain growers cease giving low-ball figures for cost of production. Doing this sends a very destructive message and hurts everyone. What's next? Although there has been bickering over a numbers of issues on the most public of public cranberry industry forums, the Stressline message board, growers in and out of Ocean Spray want to see the American cranberry industry expand overseas. In order to do so, multi-national giants like Coke and Pepsi need to compete with countries like Russia and Chile that are already developing their own cranberry industries. If Coke owns Ocean Spray, they are more likely to emphasize cranberry blends in their domestic and global juice line than if they create a new label. Think of what Coke could be doing right now if they owned Ocean Spray. The $15 million in advertising being spent to launch white cranberry juice might be $20 million, and there might be an additional $60 million going into Ocean Spray's core red juices as well as additional advertising money for craisins. The most likely post acquisition course for Coke would be to begin a major advertising campaign for the entire Ocean Spray line using a new slogan and a new spokesperson, one that Ocean Spray could never currently afford. Ocean Spray might be expanding aggressively into six new countries overseas instead of just two. This would be helping all the cranberry companies by reducing the surplus and once again giving Ocean Spray a coat with some decent "tails" worthy of riding on. And how about this: if the new Lemon Diet Coke is a hit, next year why not Cranberry Diet Coke! Ocean Spray growers need to iron out any differences on this issue and reach a consensus. The Forum is an excellent place to do this. It is a place where both Ocean Spray and Coke management can review your opinions. Coke needs to be in on this, because they need to understand that Ocean Spray isn't trying to rob their ample coffers with some hair-brained story about a couple of lunatic true blue shareholders who are holding out for an extra fifty bucks a share because Marcus Urann came to them in a dream and begging them to keep the cooperative. Stressline is convinced there are a few growers who hold those swing shares who probably dream these dreams of a bygone era. Ocean Spray growers who understand in the reality of the juice industry have two choices: Take action now and convince these growers to change their minds; or wait for them to die and hope they do so before Ocean Spray and the American cranberry industry does. |