Partners Own Dr Pepper, Seven-Up : Hicks & Haas Pops Up as No. 3 in Soft Drinks
People kept asking, “Hicks & Haas . . . who ?” Even Robert Haas’ daughter wasn’t quite sure what he did for a living.
“But now the nice thing is that my kids know what I do,” says Haas, 39. “All they have to do is open the refrigerator to see my portfolio.”
Ditto for the rest of America.
Haas and partner Thomas Hicks popped onto the soft drink scene in March, 1985, with the purchase of a Dr Pepper bottling plant. They have since acquired four soft drink companies and they now control the nation’s third-largest soda concern, behind Coca-Cola Co. and PepsiCo Inc.
“After everybody moaning about how tough it was to create a third tier, Hicks and Haas, not knowing it was impossible, went out and did it,” said Jesse Meyers, who publishes Beverage Digest, a respected newsletter that reports on the soft drink business.
String of Acquisitions
In May, the Dallas-based investment partnership bought A&W; Brands Inc. for more than $74 million. Then came the $416-million purchase of Dr Pepper on Aug. 20 and Seven-Up Co. for $240 million on Oct. 3.
The acquisition of Squirt & Co. in mid-November gave the partners a healthy 13.8% share of the $38-billion-a-year retail soft drink industry, Meyers said.
That trails far behind Coca-Cola’s 39.6% share of the market and Pepsi’s 29.2%, but it is a good jump ahead of the next closest rival, Royal Crown Cola, at 4.5%, Meyers said.
The two met each other in 1978, when Haas had left the Cleveland law firm where he was working to join a venture capital firm in the same Ohio city. Hicks, a Dallas native, was working for a similar firm in Dallas and ended up working on some projects with Haas.
“When we decided to go out on our own, we were each other’s first choice in partners,” said Haas, who was ready to leave Cleveland and was drawn to Dallas by Hicks. The two got along so well that Hicks even named his youngest of four sons after his partner.
They also have acquired two radio stations in Baton Rouge, La., and they are in the process of completing a $45-million purchase of the Muskegon, Mich.-based Clarke Floors division of Cooper Industries Inc.
What led Hicks & Haas to dash headlong into the soft drink industry?
“We had no preconceived notion of what kinds of firms we were interested in when we formed this partnership in 1984--as long as they weren’t energy-related,” Haas said from his office in downtown Dallas.
“Then we saw in soft drinks a growing market, prices and popularity,” added Hicks, 40. “It’s a steadily increasing industry that requires few capital expenditures and has no foreign competition, obsolescence or cycles.”
So they began looking for takeover targets worth between $50 million and $500 million, and part of the strategy was to avoid butting heads and advertising dollars with Coca-Cola and Pepsi.
“Each of the brands we bought is the leader in its class,” Hicks said. “None are colas. We all compete for the same share of stomach, but we don’t want to run head-to-head with Coke and Pepsi.”
By staying away from colas, Hicks & Haas is showing that “Pepsi and Coke, not necessarily in that order, clearly have the lead in colas,” said Randy Donaldson, a spokesman for Coca-Cola USA in Atlanta. He said Coke was not concerned with Hicks & Haas and welcomed the competition.
Hicks & Haas is “not going to affect the way we market our products,” Donaldson said.
Both partners say their no-cola strategy will not change for now and that they are intent on getting their acquisitions’ affairs in order before looking for another takeover target.
The task is no small one: They are folding the operations of Holland, Mich.-based Squirt into A&W;, which is more than twice as large as Squirt and based in White Plains, N.Y. That same process is going on with Seven-Up and Dallas-based Dr Pepper.
Hicks & Haas is making use of the existing management in all four companies, but the melding and streamlining process will cost hundreds of jobs, including almost half the 550-person staff at St. Louis-based Seven-Up, Hicks said.
But after the staff, capital and headquarters shuffles are over, the partners plan to leave daily operations to the people they hired to take care of them.
“We don’t consider ourselves soft drink operators,” Haas said. “We are soft drink owners. There’s a big difference.”
That position and the ensuing name recognition that comes with major consumer products do have their benefits, the two said.
“We don’t have to explain who we are to companies and investors anymore, although I know things would be different if we had bought a bunch of industrial firms instead of soft drink companies,” Hicks said.
But the buyout coups also can have other effects.
“There is a scurrying going on now among small soft drink companies for safe harbor,” Meyers said. “The marketplace we knew in 1986 will go through a 180-degree change in a year’s time.”
Hicks denied industry rumors that he and his partner have been eyeing Proctor & Gamble Co.'s Crush International Inc. unit.
“It is too much in conflict with Welch’s brand, which is managed by Dr Pepper,” he said. “Next year, we are going to go through a lot of soul-searching as to how much more our companies could absorb without going into overload and exasperating everybody.”
Meyers says, however, “I don’t think they’re finished yet.”
“Other shoes--shoes plural--may be dropping,” he said. “Even the Hatfields and McCoys eventually got together, so they may eventually bring a cola into their fold.”