snapple quaker triarc schweppes

Corporate Control, Mergers and Acquisitions

PART A: QUAKER OATS’ ACQUISITION OF SNAPPLE

BACKGROUND OF THE COMPANIES

ACQUISITION OF SNAPPLE BY QUAKER OATS

VALUATION OF SNAPPLE BY QUAKER OATS

ANALYSIS OF THE ACQUISITION

PART B: TRIARC’S ACQUISITION OF SNAPPLE


ACQUISITION OF SNAPPLE BY TRIARC

VALUATION OF SNAPPLE BY TRIARC


PART C: CONCLUSION

CONTRASTING THE DEALS

KEY LEARNINGS

ANNEXURES

PART A

QUAKER OATS’ ACQUISITION OF SNAPPLE


THE QUAKER OATS COMPANY: Quaker Oats is an American food conglomerate. The story of

Quaker Oats’ success is one of a company led by a strong management effectively growing in

the face of increasing competition and economic cycles through internal and inorganic growth.

See Annexure A1 for details about Quaker Oats.

SNAPPLE BEVERAGE CORPORATION: Snapple is an American beverage company, known for its

natural juices and fruit drinks. From a business run part-time by its founding members, Snapple

grew to become one of the leading producers of non-alcoholic drinks in North America within a

few decades. Annexure 1 provides the background of the company.

ACQUISITION OF SNAPPLE BY QUAKER OATS

A. REASONS FOR THE ACQUISITION

With an increase in competition, the Snapple stock price had halved, from $60 in 1993 to $30 in

1994. This fall in the share price of Snapple was seen by Quaker Oats as an opportunity to

increase its market share in the non-alcoholic beverage market. The acquisition would cement its

position as a prominent player in the North American non-alcoholic beverage market. The

market was growing at a rapid rate. The acquisition of Snapple was considered necessary by

Quaker Oats to remain a competitive player in the market. Yet another reason in favor of an

acquisition was that Quaker Oats expected to gain operating synergies from buying Snapple.

B. EXPECTED SYNERGIES FROM THE ACQUISITION

¾ Distribution synergy: Gatorade, positioned as a mass product, and was sold through

supermarkets and convenience stores. Snapple products were sold largely through independent

retailers, vending locations, and restaurants. Quaker Oats expected to utilize each of these

distribution channels to bolster the sale of the other product.

¾ Learning curve effects: With the sales of Gatorade rising from $122 million in 1984 to

about $1.20 billion in 1994 (22% compound annual growth rate), Quaker Oats felt that it could

use economies of scope from its Gatorade experience to boost sales for Snapple.

¾ Common activities: The Quaker Oat management believed that there were significant

synergies to be achieved in common areas such as R&D, manufacturing and marketing.

¾ Geographic expansion: Snapple generated only 1% of its sales outside North America,

while over 31% of Quaker Oats’ sales revenue came from its foreign operations. This provided a

strong platform for Quaker Oats to offer Snapple products to a wider customer base.

SOURCE OF SYNERGY

EXPECTED SYNERGY DESCRIPTION

Revenue improvement

18% sales growthInternational launch of Snapple would generate significant revenues (0% for Snapple currently vs 31% for Quaker).

Operating margin improvement

Higher EBITDA Margin

As manufacturing facilities and distribution networks are merged, costs would reduce and profit margins would increase

DEAL VALUATION

Quaker paid $1.7 billion to acquire Snapple in December 2004. Snapple, at that point was trading

at $14 per share. Its market capitalization was $1.7024 billion. For a 96.50% shareholding, the

Quaker Oats paid $1.642 billion. The effective premium to market valuation was 3.00%.

However, on calculation of intrinsic value, we find that the market had overvalued the stock.

Further, the market was in a correction phase. The price of Snapple stock oscillated from $9.38

in June 1993 to $32.25 in March 1994 to $13 in Sept 1994.This volatility reflected the inherent

changes in the industry and consequently the market reaction to these fundamental changes;

namely increased competition and potential slowdown in the revenue growth rate and margins

and therefore the outlook on Snapple.

Our basic assumption for valuation is that

since the industry is in a highly competitive

phase, the Free Cash Flow for the next year

would decrease and then get into a stable

growth rate of 15% for the next five years. The

terminal value is calculated at 5.00% growth

rate. A sensitivity analysis on the growth rate

predicts a valuation in the range of $1.186 Source: www.optimumcapital.com

billion $1,418 billion. Clearly, the future decline in growth of the company was not yet

completely factored in the market value since the market was in the correction phase. As per our

valuation, Quaker Oats expected operational synergy of greater than $600 million in the

optimistic scenario and greater than $300 million in the alternative scenario from the acquisition

of Snapple. See Annexure A2 for the valuation model.


A. OUTCOME OF THE DEAL

The acquisition was a failure right from the start. To finance the purchase, Quaker Oats sold two

of its profitable divisions. The company had to pay a huge capital gains tax on the consideration.

To make things worse, Quaker Oats could not realize the anticipated synergies with Snapple due

to many factors (detailed below). Due to the acquisition, the revenues of Snapple plummeted by

$35 million, from $657 million in 1994 to $640 million in 1995.

B. REASONS FOR THE FAILURE

1. Inappropriate assessment of product complementarities

Quaker Oats failed in their assessment of the similarities between Gatorade and Snapple. In

particular, the following were the key differences between the products:

¾ Nature of the product: Gatorade was a sports drink, while Snapple was fruit-based

¾ Production: Quaker produced Gatorade at company owned bottling facility. Snapple

outsourced the production to co-packers.

¾ Distribution and Marketing: Gatorade was a warm drink sold through mass retail

distribution channel such as hypermarkets. It provided comparatively lower margins at of USD 2

per case. Snapple was a cool drink sold through cold chain at Mom and Pop stores and

supermarkets. It provided very high margins to the distributors at USD 4 per case. Distributors

had a license for specific regions.

2. Conflict with the distribution channels and bottling vendors

A major reason of Quaker Oats’ failure to realize operational synergies was its conflict with the

existing distribution network. Immediately after the acquisition, Quaker Oats implemented

changes in Snapple’s distribution channels by asking the existing dealers to stock Gatorade in

equal proportion to Snapple. The distributors were not receptive to these changes, since the

margins were higher for Snapple than for Gatorade. This resulted in a strained relationship

between Quaker Oats and the distributors of Snapple, with the latter beginning to distrust Quaker

Oats. Similarly, Snapple’s contractual arrangements with its co-packers prevented Quakers from

using its own bottling plant to achieve the anticipated cost synergies in the bottling operations.

3. Overpayment of purchase consideration

During the period 1993-1994, Snapple was in a very volatile phase. While it grew at a

tremendous rate from 1990 to 1994, it faced an increase in competition from established players

such as Pepsi, Coke and Lipton. Snapple’s profitability was expected to reduce and the stock

price volatility of Snapple reflected this sentiment. The price of the stock moved from $60 to $14

in a short period of a few months. Quaker Oats looked at this as an opportunity to buy Snapple at

a lower valuation. However, as per our calculations the stock should have been in the price range

of $8 to $11 a share, as against $13 a share that Quaker Oats paid for Snapple. Annexure A2

shows the valuation calculations.

4. Management hubris

As per a study conducted by Mathew Hayward and Don Hambrick of Columbia University,

managerial hubris was a major cause of the high premiums that was paid for the acquisition.

Under the leadership of CEO William Smithburg, Quaker Oats made a successful buyout and

integration of Gatorade in 1983. Smithburg was convinced that he could recreate the magic with

Snapple as well. Due to this confidence, he disregarded many of the above-mentioned

dissimilarities between the products and acquired Snapple at a price which, as per Wall Street,

was at least $1 billion above the intrinsic value.

PART B

TRIARC’S ACQUISITION OF SNAPPLE

ABOUT TRIARC COMPANIES INC

Triarc was a consumer products company with operations in beverage and restaurant businesses.

Triarc was formed when the New York-based investment partnership led by Nelson Peltz and

Peter May acquired DWG Corp which comprised a jumbled mass of unrelated businesses.

Triarc’s new management brought in strategic focus and created a much narrower operating

scope. By 1997, Triarc operated well known beverage brands such as Mistic and Royal Crown

Cola, and the fast food restaurant chain, Arby's. The company was acclaimed for its relations

with distributors, its flair for marketing, and its shrewdness in developing new products for an

established brand.

ACQUISITION OF SNAPPLE BY TRIARC

A. REASONS FOR THE ACQUISITION

By 1997, Triarc Companies Inc had further refined its core businesses and focused on two

business segments: beverages and restaurants. It had a strong resolve to turn Triarc into a

branded consumer products company. The acquisition of Snapple Beverage Corporation was

expected to contribute substantially to the branded beverage side of its business. Along with its

Mistic brand of beverages, Triarc could become the market leader in the premium beverage

category. Quaker Oats' mismanagement of the Snapple brand had lowered its bargaining power,

enabling Triarc to purchase Snapple at an acutely reduced price of $300 million for a brand with

over $500 Million in sales. Further, Triarc’s divestiture of its inherited businesses from DWG

Corp. provided it sufficient financial leeway to capitalize its acquisition of the popular brand.

B. EXPECTED SYNERGIES FROM THE ACQUISITION

Operating Synergies

Triarc’s success with the Mistic brand of beverages, which it restored to profitability from a

relatively impaired stage, had helped it to develop key capabilities. It had demonstrated its talent

for improving relations with distributors. In an extremely marketing intensive business, it had

developed a flair for marketing; from packaging innovations to consumer targeting. It had also

stepped up the pace of innovation by regularly introducing new product lines. Snapple, on the

other hand had great brand equity; everybody knew the Snapple brand. An analysis of the

sources of value that are key to achieving the acquisition objectives is given in Annexure B1.

Source of Synergy Expected synergy Description

Revenue improvement 12% sales growth

Mistic sales had seen improvement of 12% in past 2 years. Also, beverage industry was expected to grow at an average of 15%.

Operating margin improvement 10% EBITDA margin Triarc expected to extend its improved margins to the entire

beverage line

DEAL VALUATION

By 1997, Quaker had racked up roughly another estimated $90 million in Snapple losses, further

cutting the unit's value. Snapple sold out to Triarc for a stunningly low price of $300 million.

The deal value was just over half of Quaker’s Snapple unit's $550 million in sales. Most industry

experts considered the final deal value a fire-sale price and not to be based on actual valuation.

Triarc's offer represented not only the highest bid to buy Snapple outright but one that brought

with it substantial cash and no antitrust problems. Facing stiff shareholder pressure to put the

debacle behind them, Quaker went with the sure thing. Triarc had plans to issue an IPO for its

beverages division before the acquisition of Snapple. Hence it would be reasonable to assume

that the investment partnership that owned Triarc was interested in the exit value of the business

at the end of 3-4 years, rather than in its value as a going concern. Thus the expected returns

from the deal to Triarc is done using EV/EBITDA multiples. See ANNEXTURE B2, B3

Value of control: To determine the terminal value of Snapple

business at the end of 2000, revenue and cost synergies are

assumed to be as given in the section- operational synergies. EV/EBITDA multiple of

comparable firms are used to arrive at terminal enterprise value for Snapple beverage unit. The

IRR for the investment is computed and is compared with the cost of equity, which is used as the

hurdle rate. Cost of equity is computed per CAPM using beta of the beverage industry in 2000.

Thus we can see that Triarc could expect to get significantly high returns from its investment in

Snapple. Sensitivity analysis around expected revenue and cost synergies is performed in later

section to analyze deal risk. See ANNEXTURE B4

Deal structure: On May 22, 1997 the Company acquired Snapple, from Quaker for $311.9

million consisting of cash of $300.1 million, $9.3 million of fees and expenses and $2.5 million

of deferred purchase price. The purchase price for the Snapple acquisition was funded from (i)

$75.0 million of cash and cash equivalents on hand and contributed by Triarc to Triarc Beverage

Holdings Corp. ("TBHC"), a wholly-owned subsidiary of the Company and the parent of

Snapple and Mistic, and (ii) $250.0 million of borrowings by Snapple on May 22, 1997 under

a $380.0 million credit agreement, as amended (the "Credit Agreement"), entered into by

Snapple, Mistic and TBHC (collectively, the "Borrowers").

Cost of equity IRR

22.13% 37.08%

Triarc’s decision to make an all-cash purchase offer for full equity holding of Snapple gave it a

favorable position since Quaker was looking for a quick exit. The all-cash offer also enabled

Quaker to register benefits from capital losses.

¾ DEAL RISKS

Financial risks: The financial valuation assumes YoY revenue growth of 12% and EBITDA

margin of 10%. Due to market uncertainties or other unexpected events, actual values may be

different. Sensitivity analysis is performed on these assumptions to assess their robustness.

Sensitivity is assessed for revenue growth projections and EBITDA margins to see its impact on

the expected IRR. See ANNEXTURE B5

Hurdle rate=22% Revenue growthEBITDA margin 0% 2% 5% 10% 12%

5% -2.86% -0.92% 2.00% 6.86% 8.80%7% 8.67% 10.84% 14.10% 19.54% 21.71%9% 18.17% 20.53% 24.07% 29.98% 32.35%

10% 22.39% 24.84% 28.51% 34.63% 37.08%12% 30.06% 32.66% 36.56% 43.07% 45.67%

Beverage industry overall growth rate for the period 1997-2005 was expected to be 18%. Also

Triarc had EBITDA margin of 40% for its Mistic line of beverages. From the analysis, it is clear

that even with very conservative assumptions, the deal for Snapple at $300 million is highly

attractive for Triarc.

Integration risks: Operational synergies originate by integrating sources of value of the acquirer

and the target. The success of an acquisition would ultimately depend upon the degree of

integration achieved between key sources of value. The complexity involved in integrating these

sources of value is analyzed in ANNEXTURE B6

Market risks: The competition in the non carbonated segment was consolidating with the

leading players focusing on groundbreaking innovation to meet consumer demands for hydration

and variation in taste. Snapple had a competitive edge due to its substantial market share.


A. Outcome of the deal

¾ Snapple’s Distributor Relationships –Triarc realized the importance of the distribution

network and the Snapple brand's remarkable success in smaller retail formats, such as

delicatessens and convenience stores and promised a renewed commitment to this network. And

this was all the more easier for Triarc since it had a good rapport and reputation of its own,

thanks to its own drink Mistic.

¾ Renewed Focus on Promotion –The focus was on bringing back the quirky image of

Snapple and for that they brought back Snapple’s spokeswoman Wendy “Snapple Lady”. Use of

innovative advertising and promotions helped increase sales drastically and this was a strategy

Triarc used to continue to enhance their brand equity;

¾ Product Innovation – Triarc had to understand the consumers well enough and expand

their product line systematically and which they did. Two weeks after their acquisition they

introduced three exotic tea flavors, a line of Snapple Farms 100% juice products and a smoothie

like beverage in six flavors called White Snapple. All these innovative product line extensions

had a significant impact on sales. Due to the in-house product development and packaging

capabilities, Triarc could bring these products to market quickly and with minimal investment

B. A Successful Merger

Financial and Operating results (See ANNEXTURE B6)

1997 1998 19990

200400600800

Triarc Beverage Division revenue growth

Revenue growth

Reve

nue

in $

mill

ions

In June 2000, Triarc Management announced an initial public offering (“IPO”) of the beverage

group. When they were contemplating this decision Cadbury Schweppes plc offered to buy the

Snapple Beverage Group. As Cadbury’s purchase price included a significant premium over the

value that they had expected to achieve through the IPO, they accepted Cadbury’s offer and

completed the sale of the Snapple Beverage Group in October 2000.

The deal was successfully completed at a price of 1,725,779.58 Euros. This definitely is a very

successful deal as the turnaround was executed out in less than 3 years time and especially of a

company which was in distress and bought at $300 million. Minus all the debt a pre-tax gain in

excess of $ 700 million was recorded.

PART C

¾ CONTRASTING THE DEALS

QUAKER-SNAPPLE

TRIARC-SNAPPLE

Risky

HighHighHigh

Valuation of the dealIntegration risksFinancial risksMarket risks

AttractiveLowLowLowOverall

deal attractiveness

LOW

Pre-merger due diligence

Post-merger analysis

Performance of Quaker Oats post acquisition and subsequent sale

Valuation of the dealIntegration risksFinancial risksMarket risks

Risky

Attractive

High

Low

High

Low

High

Low

Overall deal attractiveness

HIGH

Pre-merger due diligence

Post-merger analysis

KEY LEARNINGS

The deals studied in this report provide an excellent contrast to understanding the strategic and

financial aspects of implementing M&As. The best practices to be followed in various stages of

the deal can be summarized as follows:

Pre-merger

Strategic due diligence: This involves clear understanding of the sources of value that contribute

to operating synergies of the combined firm. The complexity involved in integrating the sources

of value should be carefully analyzed and market uncertainties that may hamper key synergy

expectations should be factored in.

Financial due diligence: This involves clear understanding of the sources of financial synergies

like debt capacity, tax benefits etc. The intrinsic value of the firm and the value from synergies

should be carefully modeled and the premium offered should not exceed the synergy value.

Post-merger

Integration Strategy: The integration strategy should determine the level of integration for assets,

processes and human resources of the acquirer and target firms. The strategy should be designed

to extract synergies while preserving the key sources of values of the combining firms.

ANNEXURE A1: ABOUT THE COMPANIES

THE QUAKER OATS COMPANY1

The Quaker Oats Company was founded in 1901 as a result of merger of four oat mills in North

America. In within a period of eighty years, the sales of the company grew over a hundred-fold,

from $16 million in 1901 to $2 billion in 1979. Over this period, Quaker Oats further diversified

its product line and geographic spread. The company invested in foreign markets by establishing

self-supporting overseas subsidiaries in Europe, South America and Asia. In 1942, Quaker Oats’

sales reached $90 million. In the later part of the century, Quaker Oats expanded in the industry's

fastest-growing areas: pet foods, convenience foods, and ready-to-eat cereals. The slow growth

of the food industry in the 1960s caused the company to make acquisitions outside the food

industry. One such was the Fisher-Price Toy Company, purchased in 1969. By 1979, Quaker

Oats had a return on capital of 12.30%, higher than the industry, but below Kellogg's 19.40%.

Quaker Oats actively managed its acquisitions: it sold its stake in its subsidiaries involved in

businesses such as cookies, restaurants, toys, chemicals and the specialty retailing space. The

company exited its investments at high valuations. By 1987, Quaker Oats’ return on shareholder

equity matched Kellogg's. In 1983, Quaker Oats acquired Stokely-Van Camp, the maker of

Gatorade sports drink. The company concentrated on three major divisions: American and

Canadian grocery products; international grocery products; and Fisher-Price toys. The company

hived off Fisher-Price Toys in 1991. Sales that year reached a record $5.50 billion. The

company’s international sales continued to be a significant percentage of the company's total.

In 1994, Quaker Oats was a strong player in the global food industry. Gatorade had been a star

performer for the company. The company saw a unique opportunity to expand its presence into

the non-alcoholic beverages by acquiring the Snapple Beverage Corporation. The acquisition

would launch the company in the league of the largest manufacturers of non-alcoholic beverages

in North America.

1 All data in this section is sourced/verbatim from http://en.wikipedia.org/wiki/Quaker_Oats_Company and from http://www.fundinguniverse.com/company-histories/The-Quaker-Oats-Company-Company-History.html

http://www.fundinguniverse.com/company-histories/The-Quaker-Oats-Company-Company-History.html

http://en.wikipedia.org/wiki/Quaker_Oats_Company

SNAPPLE BEVERAGE CORPORATION2

In 1972, childhood friends Hyman Golden, Arnold Greenberg and Leonard Marsh founded the

Unadulterated Food Products Inc. in New York. Subsequently, the name of the company was

changed to Snapple Beverage Corporation. Due to marketing budget constraints, the company

adopted an unconventional 'anti-establishment' approach to market its products. This approach

set the Snapple brand apart from traditional beverage brands, and won it loyal customers.

In 1982, the company forayed into selling natural sodas. By 1986, the company had started

distributing juices and health drinks through health stores. In 1987, the company introduced

Snapple iced tea, manufactured using a unique process, which became an instant success. In

1991, Snapple's revenues more than doubled to $95 million, with 55 percent of its sales coming

from the iced tea segment. The company had attained a solid second place in this market with

19.30% of sales, closing behind long-time market leader Lipton, with 37.20% of the market.

In January 1992, the investment banking firm, the Thomas H. Lee Company invested in Snapple.

With this deal, Snapple gained the resources to pay for nationwide distribution of its products.

Snapple expanded its distribution to every major city in North America. It also launched an

initiative to sell its products in foreign markets. By the fall of 1992, Snapple pulled ahead of

Nestea to become the leader in the ready-to-drink iced tea market.

Snapple announced its IPO in December 1992. On December 15, the stock was offered at $20 a

share. The four million shares were quickly bid for, and the stock price quickly rose to $33. In

1993, sales were up 119% from the previous year - the third year in a row in which sales of

Snapple drinks had more than doubled. By 1994, sales had begun in Canada, Mexico, the United

Kingdom, Greece, Norway and Hong Kong. Snapple was considering investing in Australia,

Singapore and the Philippines for expansion. At this point in time, the stock of the company was

trading at around $30 per share, nearly half of its price of about a year ago, and was considered

an attractive takeover target by the industry.

2 All data in this section is sourced / reproduced ad-verbatim from http://en.wikipedia.org/wiki/Snapple, from http://www.fundinguniverse.com/company-histories/Snapple-Beverage-Corporation-Company-History.html and from http://www.icmrindia.org/casestudies/catalogue/Marketing/MKTG148.htm

http://www.icmrindia.org/casestudies/catalogue/Marketing/MKTG148.htm

http://www.fundinguniverse.com/company-histories/Snapple-Beverage-Corporation-Company-History.html

http://en.wikipedia.org/wiki/Snapple

ANNEXURE A2: VALUATION MODEL

Valuation of Snapple and Synergy calculation Pre Acquisition Post Acquisition Analysis 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001Net Sales $95.00 $231.90 $516.00 $697.60 $837.12 $1,004.54 $1,205.45 $1,446.54 $1,735.85 $2,083.02 TV

% Increase 244.11 222.51 135.19

Cost of Goods Sold 58.9 143.2 298.7 402.9 $502.27 $602.73 $723.27 $867.93 $1,041.51 $1,249.81 % of Sales 62.00 61.75 57.89 57.76 $334.85 $401.82 $482.18 $578.62 $694.34 $833.21 Sell, Gen & Admin 20.4 66.3 115.2 168.5 $292.99 $351.59 $421.91 $506.29 $607.55 $729.06 SGA % Of Sales 21.47 28.59 22.33 24.15 Operating Income 15.8 22.4 102.1 126.2 $41.86 $50.23 $60.27 $72.33 $86.79 $104.15 % of Sales 16.63 9.66 19.79 18.09 % Increase 141.772 455.804 123.604 EBIT(1-Tax Rate) 61.26 $126.20 Add Depreciation 0.2 6.9 0.5 Change in WC -32.2 Capex 0 10 FCF 1 83.96 100.752 115.865 133.24452 153.2312 176.21588 202.64826 233.0455 2878.8

PV of FCF 2 1819.52 102.084 103.43265 104.7996 106.18461 107.58793 109.0098 1186.42Value Per Share 14.96321 Growth rate of 20% from 1995 based on Gatorade growth rate 2 Discount Rate of 13.50% based on WACC calculation

Analysis of Premium Paid

Stake Acquired 96.50%

Number of Shares acquired (in Millions) 117.344

Value of 96.5% stake based on DCF 1368.80

Amount Paid (in Millions) 1700

Premium Paid % 24.20

Calculation of WACCValue per share based on DCF Projection 14.96Cost of Debt 0.05After Tax cost of Debt 0.0325Cost of Equity CAPM 0.1389Rf 0.05Market Premium 0.07Be 1.27Value of Debt on the books 69.5Market Value Equity @ USD 14 per share 1702.4Enterprise Value 1771.9

WACC 0.135Beta Equity taken at 1.27 as the stock was very volatile compared to the market

Valuation of Snapple in December 2004 Growth Phase for 05 years at 20%

Pre Acquisition Post Acquisition Analysis 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Net Sales $95.00 $231.90 $516.0

0 $697.6

0 $837.1

2 $1,004.54 $1,205.45 $1,446.54 $1,735.85 $2,083.02 TV

% Increase 244.11 222.51

135.19

Cost of Goods Sold 58.9 143.2 298.7 402.9$502.2

7 $602.73 $723.27 $867.93 $1,041.51 $1,249.81

% of Sales 62.00 61.75 57.89 57.76 $334.8

5 $401.82 $482.18 $578.62 $694.34 $833.21

Sell, Gen & Admin 20.4 66.3 115.2 168.5$292.9

9 $351.59 $421.91 $506.29 $607.55 $729.06 SGA % Of Sales 21.47 28.59 22.33 24.15 Operating Income 15.8 22.4 102.1 126.2 $41.86 $50.23 $60.27 $72.33 $86.79 $104.15

% of Sales 16.63 9.66 19.79 18.09

% Increase 141.772455.80

4123.60

4

EBIT(1-Tax Rate) 1 61.26$126.2

0 $41.86 $50.23 $60.27 $72.33 $86.79 $104.15 Add Depreciation 0.2 6.9 0.5 Change in WC -32.2 Capex 0 10

FCF 83.96100.75

2 75.564 90.6768108.8121

6130.5745

9156.6895

1188.0274

12322.6

9

PV of FCF 2 1418.45 66.576

270.38894

674.42003

178.68197

183.18798

787.95205

7957.23

9

Value Per Share 11.6649

Valuation of Snapple in December 2004 Sensitivity Analysis Growth Phase for 05 years at 15% Pre Acquisition Post Acquisition Analysis 1 2 3 4 5 6 7 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Net Sales $95.00 $231.90 $516.0

0 $697.6

0 $837.1

2 $1,004.5

4 $1,205.4

5 $1,446.5

4 $1,735.85 $2,083.02 TV

% Increase 244.11 222.51

135.19

Cost of Goods Sold 58.9 143.2 298.7 402.9$502.2

7 $602.73 $723.27 $867.93 $1,041.51 $1,249.81

% of Sales 62.00 61.75 57.89 57.76 $334.8

5 $401.82 $482.18 $578.62 $694.34 $833.21

Sell, Gen & Admin 20.4 66.3 115.2 168.5$292.9

9 $351.59 $421.91 $506.29 $607.55 $729.06 SGA % Of Sales 21.47 28.59 22.33 24.15 Operating Income 15.8 22.4 102.1 126.2 $41.86 $50.23 $60.27 $72.33 $86.79 $104.15 % of Sales 16.63 9.66 19.79 18.09

% Increase 141.772455.80

4123.60

4

EBIT(1-Tax Rate) 1 61.26$126.2

0 $41.86 $50.23 $60.27 $72.33 $86.79 $104.15 Add Depreciation 0.2 6.9 0.5 Change in WC -32.2 Capex 0 10

FCF 83.96100.75

2 75.564 86.8986 99.93339 114.9234132.1619

1151.9861

91877.4

8PV of FCF 2 1186.65 66.58 67.46 68.35 69.25 70.17 71.09 773.76Value Per Share 9.75859

ANNEXURE B1: OPERATING SYNERGIES FROM TRIARC – SNAPPLE MERGER

Synergies*Assets *Wide array of products in premium beverage category*Processes *Integrated manufacturing *Integrated distribution chnls*People *Industry aclaimed mgmt

Sources of value - TriarcAssetsComplimentary beveragesProcessesInnovative marketing Distributor relationshipsPeopleEfficient management team led by industry leader Mike Weinstein

Sources of value - SnappleAssetsSnapple brand of beveragesProcessesSmall retail channel network

ANNEXURE B2: IRR CALCULATION FOR SNAPPLE INVESTMENT

$ millions 1997 1998 1999 2000

Revenues1

550 616 689.92 772.71Operating margin 10%EBITDA 77.27104

EV/EBITDA 10

Enterprise value (2000) 772.7104Purchase price (1997) 300IRR 37.08%1 Assume revenue growth of 12%

ANNEXURE B3: COMPUTING COST OF EQUITY FOR TRIARC

Computing cost of equity

rf (30 yr Treasury rate) 6.35%

rm (5 yr S&P 500 returns) 18.00%

β unlevered (beverage industry1) 0.85

D/E for Triarc after acquisition2

0.99

Tax rate 40.00%

β levered for Triarc3

1.35Cost of equity 22%

1 Source: www.damodaran.com

2 D=Long term debt for Triarc, E=Triarc share price after announcement*No.of shares outstanding

3 Assume βd=0 for Triarc, since its debt was not traded and it had identifiable assets more than its outstanding debt

ANNEXURE B4: SENSITIVITY ANALYSIS ON REVENUE GROWTH ASSUMPTIONS AND EBITDA MARGINS

5% 7% 9% 10% 12%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

Rev Growth=0Rev Growth=2%Rev Growth=5%Rev Growth=10%Rev Growth=12%

ANNEXURE B5: INTEGRATION COMPLEXITIES OF TRIARC – SNAPPLE MERGER

Synergy Description Sources of synergyComplexity of

integration

Increased revenues

Increased sales volumes due to an extended product portfolio

Integrated product portfolio MEDIUMCultural integration of brands MEDIUMTargeted promotion campaigns LOWRegular product line extensions HIGH

Optimize Snapple’s operating margin

Improve operating cost drivers through product synergies

Rationalized manufacturing costs by leveraging complementary product synergies

HIGH

Scaled national distribution network by leveraging relations with small retail channels

HIGH

ANNEXURE B6: FINANCIAL AND OPERATING RESULTS OF TRIARC-SNAPPLE MERGER

19941996199820002002

($1.40)

($1.00)

($0.60)

($0.20)

$0.20

$0.60

Earnings per share

EPS

Axis Title

1997 1998 19990

200

400

600

800

Triarc Beverage Division revenue growth

Revenue growth

Reve

nue

in $

mill

ions

1997 1998 19990.0%

5.0%

10.0%

15.0%

Triarc Beverage Di-vision EBITDA mar-

gin EBITDA margin

References:

1. http://www.brandchannel.com/features_profile.asp?pr_id=107

2. Paper no. 1-0041 – Tuck School of Business

3. http://www.mindfully.org/Plastic/Recycling/Noncarbonated-Beverage-Containers1feb07.htm

4. damodaran.com

5. Triarc Annual Reports 97, 98, 99, 00

6. "How Snapple Got its Juice Back," Harvard Business Review, January 2002, Vol. 80, No. 1

http://www.mindfully.org/Plastic/Recycling/Noncarbonated-Beverage-Containers1feb07.htm

http://www.brandchannel.com/features_profile.asp?pr_id=107

snapple quaker triarc schweppes

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