| It had the slightly conspiratorial feel of an abolitionist
meeting. Thirteen cranberry growers gathered last month in the Plympton,
Mass. barn of Ronald Drollett. The plot: Engineer the sale of Ocean
Spray, the juicemaker. If this were any ordinary corporation, it would
probably have been sold years ago in a lucrative tender offer. But this
is not any corporation. It is an agricultural cooperative, founded in
the Depression primarily to boost commodity prices. A sale of the
company requires the approval of 75% of the owner-growers.
The Plympton plotters had no hope of winning a 75% supermajority
right away. But, five years after they first made a push for auctioning
off the company, they hoped they could get 51% approval for their
proposal to appoint four new pro-sale board members at the annual
meeting the following week.
Just over a year ago the farmers who own this company enlisted Bain
& Co., Merrill Lynch and a Harvard professor to evaluate its
options. According to growers who heard the reports, the experts
recommended a sale. But the board, composed of 25 growers at the time,
nixed the idea, never giving the rest of the growers a chance to vote on
it, much less to read the studies.
How much money are we talking about? Lots. By 1995 Lakeville,
Mass.-based Ocean Spray had grown to a membership of about 750 cranberry
and 150 grapefruit growers, it had something close to a monopoly in
cranberry drinks, and its sales were $1.4 billion. At the time the co-op
might have yielded a price close to 1.5 times revenues, speculates a
beverage industry analyst. That would have come to an average of $2.3
million for each farmer-member. (Ownership shares are allotted by
barrels produced.)
Now the numbers don't look so good. The company's revenues have
stagnated and its net proceeds, which must be distributed to
farmer-members, have fallen from $280 million in 1998 to $73 million
last year. Meanwhile, rivals have crept onto supermarket shelves.
Today's value might be less than one times revenues, says the analyst.
Some of the co-op members, though, are more desperate than ever to
sell. Many cranberry growers are on the verge of going under, thanks to
the drop in berry prices from $60 a barrel in 1998 to $10 now. They need
$35 to break even. "It's a terrible goddam mess," says
Drollett. "If the growers had more information and knew the value
of their shares on the open market, then they might consider a
sale."
How ironic that in the mad scramble to acquire noncarbonated
beverages, which are growing in volume three times faster than fizzy
drinks, one of the best-known brands can't find its way to the auction
block. What better way for Coca-Cola, humiliated after its
short-circuited takeover of Quaker, to get back into the game? Or for
PepsiCo to add to its mighty line of Tropicana, Sobe and Gatorade?
It doesn't help matters that the largest cranberry growers,
disillusioned with Ocean Spray, quit the co-op in 1993getting a
pittance for their co-op shares, since departing members have to sell
them back at cost. The group now sells its own premium brand under the
name Northland Cranberries, a publicly traded company. Northland eked
out a tiny profit in the first quarter of this year, but its shares are
lingering below $1.
Ocean Spray once had a shot at being acquired. In 1994 it formed a
joint venture with PepsiCo to distribute its single-serve juices in soda
machines and grocery stores. But after dealing repeatedly with
complaints from Ocean Spray farmers that they were getting scant
attention, PepsiCo acquired Tropicana and eventually let the deal with
Ocean Spray lapse.
"Everyone feels wronged," says Robert Hawthorne, the former
Pillsbury marketer brought in as Ocean Spray's chief executive last
year. He says he is evaluating how to enhance shareholder value. Yet, he
adds, "the board gave me an objective: to turn this company
around."
What this company needs to enhance shareholder value is a takeover
raidif only there were such a thing in the co-op world.
Update*
At their annual meeting on January 16th, after Forbes went to press,
Ocean Spray growers voted two-to-one not to explore a sale of the
company. An alternate slate of four likely pro-sale board candidates was
also turned down. |