Quaker Stock Hits Record High

Quaker Oats (ticker symbol: OAT) stock jumped 9% to an all-time high Friday after a failed buyout attempt by PepsiCo (PEP) set the stage for an expected bidding war for Quaker and its blockbuster product, Gatorade.

Industry analysts said another bid is possible by Pepsi, despite having its $13.7-billion offer rejected as insufficient by Robert Morrison, head of the Chicago-based food and drinks maker. A source familiar with the discussions said Quaker turned down the bid Thursday.

Despite a long struggle with cold-cereal sales, Quaker Oats has posted 11 straight quarters of double-digit profit gains thanks largely to Gatorade’s more than 80% share of the growing sports-beverage market. Gatorade represents more than 40% of company sales, with the rest coming from such brands as Quaker and Cap’n Crunch cereals, Aunt Jemima mixes and syrup and Rice-A-Roni.

“Gatorade is an extraordinary brand,” said John Sicher, editor of Beverage Digest, an industry publication. “Any company with a significant presence in nonalcoholic beverages either has taken a look at Gatorade or will be taking a look at Gatorade in the near future.”

Pepsi and Swiss giant Nestle (NSRGY) are considered perhaps the two likeliest bidders, with Coca-Cola (KO), France’s Danone (DA) and Britain’s Cadbury Schweppes (CSG) also potential buyers. All the main cereal companies are tied up with other transactions.

Spokesmen for Quaker, Purchase, N.Y.-based PepsiCo and other prospective suitors declined comment Friday.

Quaker shares rose $7.38 to $89.63 Friday on the New York Stock Exchange and have now nearly doubled since March. PepsiCo shares, meanwhile, fell $1.25, or more than 2%, to $45.81 also on NYSE as its investors showed their disappointment in the missed deal.

Quaker has been rumored as a takeover target for years, and a buyout has become increasingly likely in a rapidly consolidating food industry.

Analysts said Morrison, who came to Quaker as chief executive in 1997 from Philip Morris (MO), where he successfully integrated Kraft and General Foods, has effectively put the company up for sale. Morrison is credited with cleaning up Quaker after its fiasco with Snapple--the tea and fruit drink line it unloaded at a $1.4-billion loss the year he arrived.

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Feeling Their Oats

Shares of Quaker Oats rose 9% on Friday on takeover speculation, bringing the stocks gain for the last 12 months to 32%.

Weekly closes and latest

for Quaker Oats (OAT)

on the New York Stock Exchange

Friday:

$89.63,

up $7.38Source: Bloomberg News