Selling the cooperative or merging: a response to business person

by Nabiel Shawa

11/21/99 - I would agree that Business Person’s comments are reasonable and insightful. We seem to agree on many points however I respectfully disagree on seeking Welchs and Tree Top as the best merger candidates. Assuming you are a fellow Grower/Owner, what is your most dire need and that of our company? In one word, I believe the answer is Capital (followed closely by competence and stability). Washington State is renown for its apple industry. This year many farmers didn’t even harvest their crop. Tree Top has its own crisis to deal with. Welchs seems to be doing fine but I seriously doubt they have any desire to infuse huge amounts of capital into our company. What would be the return to their owners? I have heard vague claims of greater juice aisle dominance and combined efficiencies (on the assumption that Welchs and Tree Top have excess production capacities), but these are armchair economic analyses. Claims of savings through combined efficiencies is possible but someone has to run the numbers (which requires access to information), determine the levels of excess capacity, logistics, transportation costs, etc. And still, where is the Capital we need? As Business Person correctly points out, the independents enjoyed a few years of wind fall profits that enables them to better weather these turbulent times, not to mention they’re still being paid increasingly more (in percentage terms) than we. Apparently the new plan calls for the Capital for corporate’s needs to come from the hides of us Grower/Owners.

Instead I see a much brighter future in merging/selling to a powerful international corporation. A corporation with ample capital that can be infused into both the Grower/Owners’ portfolio and into the label and juice processing assets they have acquired. There are great potential efficiencies in this arrangement such as manufacturing, distribution, marketing, and competent management. But we also need long term stability. And finally, I for one am not advocating a sales/merger at any price or any terms.

That is why it is so important to explore the sales/merger option. We need to determine the true market value for our juice segment (brand name and tangible assets). Once we have acquired the best offer we can then more accurately determine which path (major restructuring vs sales/merger) is more likely to yield the greatest long term benefits. This information and analysis must be openly shared and communicated. Finally it needs to come to a vote. I firmly believe the majority stockholders must have the final say on this critical decision.

As for the control issue, Thomas Gelsthorpe eloquently bashed any nonsense that anyone in OS is in control. To paraphrase him; if this is control what does out-of-control look like; if this is control when did we elect to receive a supposed $20 something a barrel? Further we cannot control the expansion of cranberry planting domestically nor internationally. The Doomsday Prophecies of massive international acreage w/ cheap labor may occur (at some indeterminable point in the future) or it may not. Who can tell what the future demand will be (see Dr. James Tillotson’s article) on what technological breakthroughs will occur that will effect us? If at some future point a massive supply of cheap foreign cranberries emerges, large enough to fuel a major product line in a global corporation like Coke Cola and we maintain the status quo how will we then compete? What value, if any, will remain for the "unlocking." Again I agree with Business Person that the free market will ruthlessly determine the outcome, as it should.

Now, if you’re a Grower/Owner please step out of the gloomy shadow of despair cast upon us by our Directors. Help shape our destiny through an open, democratic process. Step into the light and onto the playing field!

Business Person responds:

I would like to clarify a few points in my previous postings. My belief that Tree Top and Welch's are obvious merger candidates stems from a theory that a large fruit cooperative will be able to compete with the beverage giants over the long-term. I would agree that neither of these companies are probably interested in a merger given the state of Ocean Spray, and, even if they were, OSC is not in the best negotiating position. I would favor a merger with a Northland or other independent group of growers. I simply feel that many coop members would prefer to retain the cooperative way of life if possible.

I believe strongly that you are correct in your effort to bring the grower/owners "on to the playing field" and let the group decide the future for your company. If the grower/owners believe it is time to cash in with a sale to someone like Pepsico, then that is an owner's right. I feel compelled to comment because I believe the growers should be prepared for the cycles that I suspect will follow a sale/merger as you describe it.

I applaud your efforts to fully explore the sale/merger option with all grower/owners. I don't pretend to have all the answers, simply some opinions based on experience in the industry and a time with your company.

Business Person

This debate continues on the Forum..........