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.

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