Ocean Spray: Crave the sale?

The cooperative of cranberry and grapefruit growers has hired Morgan Stanley to explore options for its juice business.

Ocean Spray Cranberries Inc. may be craving a sale.

North America’s leading producer of canned and bottled juices — known for the tag line “Crave the wave” — has hired Morgan Stanley to begin an exploratory sales process for its juice business, sources said. The move comes several months after competitor Northland Cranberries Inc. made a public $800 million offer for Ocean Spray’s juices, which was ignored.

Lakeville, Mass.-based Ocean Spray is a cooperative owned by 800 cranberry and 125 grapefruit growers in the U.S. and Canada. Likely bidders for the company’s juices include Campbell Soup Co., Coca-Cola Co. and Kraft Foods Inc., as well as Cadbury Schweppes plc, Northland Cranberries and PepsiCo Inc.

Ocean Spray’s juice business is attractive to these companies not only for the brand, but for the contracts that are likely to come along with it. The cooperative’s owners grow about two-thirds of the world’s cranberries. A buyer of Ocean Spray’s juice business would also likely sign a contract with Ocean Spray’s owner-growers to buy the actual berries.

Without Ocean Spray’s growers, none of its rivals could launch a sizable competitor to its dominant cranberry juice brand.

PepsiCo’s Tropicana Products Inc., for example, makes its own cranberry juice, but it cannot buy enough cranberries to compete with Ocean Spray on a large scale.

An Ocean Spray press officer said the a sale is one of many strategic options being explored for the business. He said an outside consultant had been hired but declined to name it. A press officer for Morgan Stanley declined to comment.

Northland’s $800 million offer for Ocean Spray, made in February, was roughly equal to the company’s juice sales. One month after the bid was rebuffed, 9 new members were elected to Ocean Spray’s 12-member board.

“From what I see and hear, it does appear that Ocean Spray is aggressively pursuing all options,” said John Swendrowski, CEO of Wisconsin Rapids, Wis.-based Northland. Swendrowski declined to comment on whether his company is interested in bidding again.

Purchase, N.Y.-based PepsiCo, meanwhile, has long been interested in buying Ocean Spray’s juices during what has been a turbulent relationship with the cranberry king, a source said. The beverage giant distributed Ocean Spray’s products in convenience stores for years until PepsiCo agreed to buy competitor Tropicana in 1998. Ocean Spray filed but withdraw a lawsuit to block PepsiCo’s purchase of Tropicana on grounds it would interfere with Ocean Spray’s distribution.

Trust between the two was broken, and PepsiCo stopped distributing Ocean Spray in the U.S. when its distribution contract expired about 18 months ago. Its Canadian distribution contract ran out a few months ago.

Now Ocean Spray distributes to convenience stores through a third party, which has led to lost single-store sales and increased costs.

The appeal of cranberry juice in America is uncanny as sales continue to rise. The juice still tops apple and grape as the No. 1 seller in dollar volume in the supermarket nonrefrigerated shelf space, Swendrowski said.

He said cranberry grocery sales have fallen 3% in 2003 compared with last year, but that does not factor in sales in such big box retailers as Wal-Mart Stores Inc. or convenience stores; sales are actually rising, he said. Sales growth can come from international channels, as cranberry juice is still mainly sold only in the U.S.

Many big beverage companies already own juice companies and are likely to be interested in bulking up in the cranberry sector. Cadbury owns Mott’s Inc., Coke has Minute Maid Co., Nestle SA has Juicy-Juice, and PepsiCo has Tropicana. A food giant such as Kraft might be interested in getting into juices or making Ocean Spray-branded cookies. – http://www.TheDeal.com

by Josh Kosman
672 words
11 August 2003
Daily Deal
Copyright (c) 2003 The Deal LLC