IS GATORADE FOR SALE?
The stock of Quaker Oats (OAT) has been a terrible laggard, but CEO William Smithburg vowed in late July that he would ``move every mountain,'' to boost its value. Well, one of the mountains to be moved, whispers the chief investment strategist at a New York investment bank, is Gatorade. With sales of $1.2 billion last year, Quaker's Gatorade unit is estimated to be worth $3 billion, or about 23 a share. In 1995, Quaker had sales of $6.3 billion.
According to this banker, a large beverage company has expressed interest in Gatorade to complement its own sports-drink product. In that go-go market, Gatorade is believed to control 80% of sales. Coca-Cola's Powerade and PepsiCo's Allsport are the two other U.S. products in that category.
Quaker has hired a Wall Street law firm and an investment bank to lay the groundwork for the sale, according to the banker. Unloading Gatorade, he adds, is the first move in a series of steps in restructuring Quaker to enhance shareholder value. ``Smithburg is dead serious in seizing this opportunity to shake up the company,'' he says.
Quaker stock has been stuck in the 30s: On Aug. 13, it closed at 31, down from its 52-week high of 375/8. Two years ago, it was trading at 43. Based on its breakup value, says one analyst, Quaker is worth 48 to 50 a share.
Earlier rumors were that Quaker would sell Snapple--acquired in December, 1994, for $1.7 billion--because of poor sales. Quaker may still sell off Snapple, along with Gatorade, the banker says. In the second quarter, sales of Snapple, which produces ready-to-drink tea and fruit drinks, fell 10% behind year-ago results. Quaker has integrated Snapple with Gatorade operations.
Lately, Quaker has also been haunted by disappointing sales in its ready-to-eat cereals, with volume dropping 7% in the second quarter. The drag in sales has prompted a cut in prices. Spokesman Ron Bottrell says that the company doesn't comment on market speculation.
By GENE G. MARCIAL
Updated June 14, 1997 by bwwebmaster
Copyright 1996, Bloomberg L.P.