Bidding wars continue

Earlier this month, PepsiCo made an offer to acquire Quaker Oats Co., formally starting a bidding war for the company. Rumors of a sale started in March for Quaker, which produces brands such as Aunt Jemima, Captain Crunch cereal, Rice-A-Roni and, more importantly, Gatorade sports drink.\nGatorade is the market leader in the fast-growing non-carbonated sports drinks market, with 84 percent of the market choosing it over competing drinks. The market has grown a healthy 11 percent this year, while the soft drinks market has been plodding along over the past few years growing at 1 percent or so.\nThe prices offered to Quaker weren't enough to close the deal. PepsiCo offered $14.8 billion and was quickly rebuffed earlier this month. The Coca Cola Company offered a sweeter price of nearly $16 billion or $116 per share. Coke later rescinded its offer after internal disagreement and antitrust worries.\nSome directors, including investment expert Warren Buffet, raised questions about price, according to the Wall Street Journal. Coke's main -- if not only interest -- in Quaker is Gatorade. Taking this into account makes the nearly $16 billion price tag seem excessive for one product line, even if it has double digit growth. \nFrench foods conglomerate Danone, maker of Dannon yogurts and Evian bottled water, was in talks for only a day before pulling out because the price was too high.\nAntitrust regulators have a strong case for blocking Coke's bid since Coke has 11 percent of the sports drink market with its Powerade drink. If it added Gatorade, it would command a whopping 95 percent market share. \nBoth of Coke's attempts at acquiring two smaller drink companies in the past year were blocked by antitrust regulators. On the day Danone announced its interest, shareholders punished it by sending its stock down more than 10 percent.\nIn a press release, Danone said it backed out of the bidding war recognizing it had bitten off more than it could chew. Danone's small size compared to Coke or PepsiCo is a market value of approximately $20 billion, which makes swallowing the richly valued Quaker too tedious a task.\nDanone never offered a price. Investors responded positively when the company announced it would back out, sending shares up over 6 percent last Thursday. \nThe bidding war has driven Quaker's stock price up nearly 100 percent over the past few months, creating a strong incentive for management to sell at such a rich valuation.\nMany analysts say the company is still up for sale. Gregory Wild, director of research at Heartland Capital Management, told the New York Times, "This company is so much in play that I don't see how Morrison walks away (without accepting a bid)." Robert S. Morrison is CEO of Quaker Oats.\nAccording to the Wall Street Journal, some analysts predict another bid might come again from PepsiCo or possibly from new bidders, such as Nestle SA, Cadbury Schweppes PLC or Unilever PLC. More action is expected in the fight for control over Quaker and its prized possession, Gatorade.