Coca-Cola’s Plan to Buy Quaker Oats Loses Its Fizz

Coca-Cola Co.’s board of directors late Tuesday decided not to buy Quaker Oats Inc., ending the company’s pursuit of the nation’s dominant sports beverage, Gatorade.

The company, the world’s largest soft drink maker, did not say why it had decided not to pursue the deal. Earlier Tuesday, sources familiar with the talks had indicated that the two sides were close to a deal that would have valued Quaker at more than $13 billion.

Coke released a statement late Tuesday saying its board expressed enthusiasm for the “current strategic course” under Chairman and Chief Executive Douglas Daft, calling it the best means for enhancing shareholder value. A company spokesman declined further comment.

Quaker Oats spokesman Mark Dollins said late Tuesday the company would not comment.

Analysts said Coke had begun talks with Quaker Oats in part to prevent its main rival, PepsiCo Inc., from acquiring Gatorade, which commands more than 83% of the U.S. retail market for sports drinks.

UBS Warburg analyst Caroline Levy said Monday investors were nervous about Coke straying from its core competency.

Doubts had been raised over whether Coke would have been able to effectively manage Quaker’s lineup of food brands, which include Rice-A-Roni, Cap’n Crunch and Life cereals and Aunt Jemima pancake products.

Earlier this month, Quaker Oats rejected a $14.8 billion offer from Pepsi.

French-based Danone, which sells Evian bottled water, was seen as a distant bidder because of the price Quaker Oats is seeking--reportedly more than $15 billion.

“Whoever gets it is not just king of the mountain but king of the mountain range of sports drinks,” said ING Barings beverage analyst Manny Goldman. “You almost never see anything this clear cut, where you have Gatorade that would fit beautifully in both companies.”

Cola sales, which have long constituted Coke’s core business, have been flat in recent years as more health-conscious consumers turn to waters, teas and other non-carbonated drinks.

Despite its North American popularity, Gatorade has had little introduction elsewhere. Coke would have brought a potent distribution network to the brand, analysts said.

“I think Gatorade has very interesting global growth potential,” said John Sicher, editor of the industry publication Beverage Digest.

Before the announcement, Coke shares fell $1.31 Tuesday, to $55.25. Quaker Oats shares fell 56 cents to $94.44, while Pepsi was up $1.50 to $46.50.

Because of antitrust concerns, regulators would have been likely to force Coke to sell its own sports beverage brand, Powerade.