Coke abandons bid to takeover Quaker Oats

Industry experts and analysts see the sudden collapse of the bid as a blow to the efforts of Douglas Daft, the company’s new chief executive, whose earlier strategic moves to bring the company back on track have been well received by the board. The company, however, in a prepared statement said that the board 'expressed its enthusiastic support for the current strategic course of the company' under the leadership of Douglas Daft, chairman and chief executive officer.

The unexpected announcement overturned earlier indications that both sides had been confident of reaching an agreement. The pull-out threw the future of Quaker Oats into question, leaving it no choice but to consider an offer by French dairy and biscuits group, Danone or return to negotiations with Coke’s rival, PepsiCo, whose earlier offer the company had rejected.

The acquisition would have provided Coke with the invaluable Gatorade brand of sports drink that would have given it a sizeable lead in the non-carbonated soft drinks market. Pepsi and Cadbury Schweppes have been aggressively moving into this segment.

Company insiders insist that the board rejected the deal because the management was already stretched with the massive restructuring being carried on in the company to rejuvenate it. Since Mr Daft became chief executive in February, over 18 per cent of the company’s workforce have been laid off and 23 of the company’s 26 division heads replaced. In its bid to concentrate on running the company without any distraction, Mr Daft also settled out-of-court a federal discrimination lawsuit against the company.

Most board members felt that the uncertainties of Quaker Oats' food business, which grew only 2 per cent last year, would have created a potentially unwelcome diversion for the company’s management, which has little expertise outside of beverages.

Coke has resolved to gain a larger foothold in the non-carbonated beverage business, aiming to counter Pepsi's many advances in the category. This was also to counter the flat growth in the soda market and meet the mounting pressure from investors demanding better performance.