The Problem with Snapple, Part II

Do you think Snapple should have been sold for $300 million?

Yes, I think Snapple should have been sold for $300 million. By the time Quaker Oats decided to give up its rejuvenation efforts and sell Snapple, the continued losses of keeping Snapple would have been more than the immediate loss of selling Snapple for such a low price. Although Quaker Oats did not recoup much of its investment, the sale did allow the company to stop losing money, which was more important at that time.

What are the social implications related to this case? What did you learn that might be helpful in your work?

The main social implication related to the acquisition of Snapple was the overall negative effect it had on Quaker Oats’ profitability, and therefore the financial well-being of Quaker Oats’ shareholders. If the main responsibility of managers is to the owners, or shareholders, of a company, then making a large purchase, such as purchasing Snapple for $1.7 billion, without considering all of the financial ramifications of the purchase is very socially irresponsible. According to the Classical view of social responsibility, managers are supposed to maximize shareholder’s profits (Robbins, 2005). Clearly in the case of Snapple, this did not happen as profits decreased as a result of the acquisition.

By reviewing this case I learned that top level managers are just as likely to allow their egos to intervene in their decision-making as is everyone else who achieves a certain level of success. No matter what field one is in, previous successes have a tendency to overshadow the hard and clear facts of future decisions. In this example, the success of Gatorade overshadowed the practicality that was needed when reviewing the clearly declining financial situation of Snapple before its purchase.

To Sum Up...

Smithburg’s purchase of Snapple illustrates the necessity of fully evaluating any major acquisition. This includes knowing the current competitive market, understanding the production and distribution methods, and having a financially sound plan in place to make a declining company profitable, or to raise the demand for products of an already profitable company. If after the purchase has been made and the plans have been carried out, the acquisition is still not profitable, then it is also vitally important to realize that less money will be lost by selling the failing company quickly for a relatively low price than by keeping the failing company and continuing to lose money.

Bibliography

Hartley, Robert F. 2005. Management Mistakes and Successes. Eighth edition. John Wiley & Sons, Inc.

Mankiw, Gregory N. 2007. Principles of Economics. Fourth edition. Thomson South-Western.

Robbins, Stephen P., Coulter, Mary. 2005. Management. Eighth edition. Upper Saddle River, NY. Pearson Education Inc.