News > Deals
In Focus: Coke, Quaker
November 20, 2000: 12:15 p.m. ET

Analyst Ann Gurkin comments on possible Coca-Cola, Quaker Oats deal
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NEW YORK (CNNfn) - Coca-Cola is reportedly offering $16 billion for Quaker Oats. Ann Gurkin, food and beverage analyst, Davenport & Company, comments on this story and other news in the consumer food products area.

In Focus airs daily on CNNfn's network at 12:10 p.m. The following includes comments Gurkin made both during the show and in the pre-show interview.

Click here for up-to-date information on the Quaker/Coke talks

CNNfn: Coca-Cola (KO: Research, Estimates) is reportedly offering $16 billion for Quaker Oats -- that's about $1 billion more than Pepsi offered earlier this month -- isn't that a bit expensive?

Gurkin: It's very expensive. Coke is buying a premier brand but it's paying a hefty multiple for that brand.

CNNfn: Can Coke afford it?

Gurkin: Coke is rumored to be using stock as currency, and the stock has been going up nicely recently, but the company hasn't confirmed this.

  Coke has to contend with anti trust concerns - Coke owns and markets Powerade, which we estimate has about a 15% share of the market in the sports drink category.  
  Ann Gurkin, food and beverage analyst  
CNNfn: Pepsi's bid earlier this month failed to impress Quaker's CEO -- does Coke have a better chance by increasing the bid?

Gurkin: Yes, the higher price is more appealing for Quaker. But Coke has to contend with antitrust concerns -- Coke owns and markets Powerade, which we estimate has about a 15 percent share of the market in the sports drink category.

By acquiring Gatorade they would dominate the category so there would be antitrust concerns. Quaker also has the food business, and the question would be if Coke can be successful in a whole new segment of the market.

CNNfn: What else does Coke have to offer Quaker?

Gurkin: Coke has a larger worldwide distribution network than Pepsi does, and that's an advantage for Coke.

CNNfn: Why is Quaker Oats attractive to Coca Cola? Is it their Gatorade brand?

Gurkin: It's all Gatorade. With Gatorade they would be entering into a growth segment of the beverage market. There's little to no growth in traditional carbonated beverages. All the growth is in sports drinks and alternative beverages like teas, flavored waters, and flavored juices. The trend is away from carbonated beverages.

CNNfn: How is Quaker's cereal business doing?

Gurkin: Slow growth. The domestic cereal market is flat to declining. It's a very price competitive environment. It's difficult to maintain share and make money in cold cereal market.

CNNfn: Salomon downgraded Coke today -- what's your outlook for the company?

Gurkin: We'll maintain a "buy" rating on Coke until this settles down.

CNNfn: What's your outlook for the food group?

Gurkin: As consumers remain defensive, those groups will continue to perform.

CNNfn: Since June, Philip Morris has acquired Nabisco, Unilever bought BestFoods and Keebler combined with Kellogg's -- will this consolidation trend continue?

Gurkin: We won't see as many large consolidations at that type of level. We'll probably see more smaller, fill-in types of acquisitions.

CNNfn: What are your favorite stocks in the beverage sector?

Gurkin: Coca-Cola Enterprises (CCE: Research, Estimates), Pepsi (PEP: Research, Estimates), and Coca-Cola. (KO: Research, Estimates)

--Compiled by Tanya Helenius. CNNfn reporter Carmina Perez contributed to this report graphic


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