Quaker Oats-Snapple Merger

Minicase for analysis: Quaker Oats’- Snapple

Do you think that faulty due diligence was the cause of merger failure in this case? Explain. What did the managers do wrong and what would you have done differently?

Reading more about the merger between Quaker Oats and Snapple and how it failed to succeed, it became clear that Quaker Oats conducted an inadequate due diligence process and that the main reason for this was due to managerial hubris within the company. If Quaker Oats would have taken the time to analyze all the relevant characteristics of Snapple, including its financial, operating, human and legal implications among others; the company could have obtained a complete understanding of the issues, it could have avoided paying too high a premium (USD$1.7 billion) or just avoid making an inappropriate merge.
Managerial hubris lead Quaker Oats to do less than adequate job due diligence and even to ignore information received from the due diligence process. Quaker’s executives approached the Snapple deal with a mixture of confidence, ego and urgency they believed that pairing the established Gatorade brand with Snapple would allow Quaker to realize significant synergies. The confidence was easily understood because Quaker had an impressive record in beverage marketing, having developed Gatorade into a national brand. The urgency was lead by the need of adding another beverage brand in its portfolio because Quaker was at a serious disadvantage to larger players that could use their broader lineups to capture economies of scale. Quaker needed to add a second brand that could capture similar economies.
So, the main reasons why the three years of merger between Quaker and Snapple ended up as a failure was that Quaker’s executives, in their rush to repeat their success overestimated the synergies the merge could bring. They clearly overvalued Snapple, there was no deep assessment of the companies’ growth rates, they failed to completely integrate the...