Coca-Cola board decides not to pursue Quaker acquisition

Wednesday, November 22nd 2000, 12:00 am

By: News On 6

ATLANTA (AP) _ Coca-Cola Co. has abandoned its pursuit of Quaker Oats Co., with the soft drink company's board rejecting a deal reportedly worth $15.75 billion to acquire the maker of Gatorade, oatmeal and Life cereal.

Only hours after late Tuesday's announcement by Coke, the French food conglomerate Danone Group issued a statement that it may be interested in making a bid for Quaker Oats.

Coke's board decided against buying the Chicago-based company after meeting Tuesday in New York. The board released a statement saying it was pleased with the company's ``current strategic course'' under chairman and chief executive Douglas Daft, calling it the best means for enhancing shareholder value.

No further talks between Coke and Quaker Oats were planned. Company spokesmen declined further comment.

The board's reluctance to approve the deal was heavily influenced by director and investor Warren Buffett, whose concerns ranged from issuing new Coke shares to possible antitrust implications, The Wall Street Journal reported Wednesday, citing people familiar with the situation.

Nonetheless, both sides at one point Tuesday believed a deal was imminent as Coke's chairman Daft and Quaker chairman Robert Morrison had publicity photos taken together, the Journal reported.

The board had been considering a stock offer valuing Quaker at $115.09 per share, or $15.75 billion, the Journal reported.

Analysts said Coke had begun talks with Quaker Oats in part to block a bid by its main rival, PepsiCo, to acquire Gatorade, which commands more than 83 percent of the U.S. retail market for sports drinks. Coke's own brand, Powerade, has about 11 percent share.

Investors had expressed disapproval of the deal, sending Coke's shares down 10 percent since news reports of the soft drink giant's talks with Quaker Oats surfaced Sunday night.

Some analysts also had questioned whether Coke would have been able to effectively manage Quaker's lineup of food brands, which include Rice-A-Roni, Cap'n Crunch and Life cereals and Aunt Jemima pancake products.

UBS Warburg analyst Caroline Levy said Tuesday investors also were nervous about Coke straying from its core competency.

Earlier this month, Quaker Oats rejected a $14.8 billion offer from PepsiCo. Pepsi spokesman Larry Jabbonsky declined to comment on the issue Wednesday.

French-based Danone SA, which sells Evian bottled water, was seen as the least likely bidder because of the price Quaker Oats is seeking _ reportedly more than $15 billion.

But in Wednesday's statement, Danone said its ``possible interest is based on the fact that an agreement with Quaker could be consistent with Danone Group's stated strategy to create shareholder value through developing a world leader in focused, growth oriented, healthy nutrition and beverage businesses.''

Coke, which historically has opted to develop its own brands rather than acquire competitors, was likely to be concerned about paying too much even with Gatorade's status as ``the creme de la creme'' of beverage brands, ING Barings analyst Manny Goldman said before the talks ended.

``At what point does it become ludicrous?'' he said. ``And that is the most difficult question to answer because you know fundamentally it's tremendous, but at what point does it become ludicrous?''

Cola sales, which have long constituted Coke's core business, have been flat in recent years as more health-conscious consumers turn to waters, teas and other non-carbonated drinks.

But despite its North American popularity, Gatorade has had little introduction elsewhere. Coke would have brought a potent distribution network to the brand, analysts said.

``Gatorade's a great brand,'' said John Sicher, editor of the industry publication Beverage Digest. ``It would have been a terrific addition to Coke's lineup.''