TAKEOVER TALK HAUNTS QUAKER

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Week after week, month after month, year after year, Ron Bottrell answers the same question the same way.

"As a policy, we do not comment on rumors or unusual activity in our stock," the chief spokesman of Quaker Oats Co. tells all who ask about recurring reports that the Chicago food company is about to be bought.

Since June, Mr. Bottrell and his colleagues have issued that statement dozens of times as Quaker's stock advanced twice on two separate takeover rumors.

Nonetheless, the decade-plus of rumors has generated close to 500 stories in major U.S. newspapers, played havoc with Quaker's stock and distracted management from the job of running the company.

Yet those who follow Quaker have yet to uncover any evidence that it has even been formally approached about a takeover.

So, why can't the Quaker Man shake the speculation?

No. 1: The company has landed on Wall Street's short but stubborn list of favorite takeover candidates.

No. 2: There could be some truth to the rumors.

Companies that categorically deny rumors put the stories on the back burner, but responding with a "no comment" leaves room for the stories to grow, she said.

That could be part of the problem for Quaker.

It issued its standard no-response response twice in recent weeks, first in June to a rumor that food giant Nestle was a possible suitor and then in July to a similar rumor about food and tobacco company Philip Morris Cos. (Nestle's chairman denied interest; Philip Morris would not comment.)

The first rumor sent Quaker's stock up more than $7 to a new 52-week high of $78.50 before it plunged $8.25 on Nestle's denial. The second sent the stock up $2.75. Despite the turmoil, Quaker is sticking to policy.

Denials and silence from Quaker and its purported suitors aren't enough to stem takeover talk, though. Some aspects of Quaker's business and the way it is managed make the company vulnerable, eventually, to a takeover.

Among the reasons the story remains alive:

The food industry has been consolidating, with big companies buying smaller ones.

Quaker, with sales of about $5.9 billion and a market value of around $5 billion, is small enough to be picked off by a larger consumer products company, most analysts maintain.

Quaker's Gatorade, with sales of about $1.1 billion and dominance in the sports drink market, is a strong magnet.

Many of Quaker's other product lines-rice cakes, cereals, frozen waffles and pet food, among them-don't have the appeal of the company's biggest money maker. A buyer interested primarily in Gatorade could sell smaller brands to pay acquisition debts.

Ms. Gallagher is an associate editor with Crain's Chicago Business.

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