Ocean Spray rejects Pepsi offer

cean Spray members in June voted down an offer to form a venture with PepsiCo, under which Pepsi would have bought the co-opís beverage business. PepsiCo had offered the co-op $100 million and said it would assume some of the coopís debt in exchange for the nationís leading cranberry juice brand. Instead, the 925 members opted to continue the 75-year tradition of operating the company as an independent, farmerowned cooperative.

The vote was 52 to 48 percent against pursuing the Pepsi venture, under which the co-op would have continued to run the agricultural business, but the value-added beverage operation would have gone to Pepsi. In essence, the co-op would have reverted to being a raw-product supplier to Pepsi.

Ocean Spray is the top-selling brand in the non-refrigerated juice aisle of the nationís supermarkets, with sales of about $540 million last year. But cranberry prices have been depressed in recent years, due primarily to crop surpluses. However, the market has been coming into better balance, and fruit prices have again been on the rise. In 2002, co-op members averaged $35 a barrel.

Growing cranberries and producing quality beverages and sauces is not the issue for Ocean Spray. The main problem is product distribution in an industry that has become concentrated in the hands of a few giants. Proponents of the deal said that because PepsiCo and Coca-Cola Co. control 75 percent of the nationís distribution of noncarbonated drinks, it is too difficult for a small (by comparison) company to gain entry to crucial marketing outlets, such as the single-serve beverage business in convenience stores.

Opponents contended that the deal would have clamped a too-low price lid on future grower earnings at a time when fruit prices are rising. Further, they say other marketing deals are possible that would not force the co-op to give up its value-added arm. Some have even suggested that Ocean Spray explore a joint marketing venture with other co-op juice producers, such as Tree Top, Welchís and Floridaís Natural.

The verdict on the Pepsi deal means the co-opís board will cease all talks with PepsiCo and other potential equity investors, focusing all efforts instead on working with management to build the Ocean Spray business for the future. The decision by Ocean Spray growerowners in Massachusetts, Wisconsin, New Jersey, Florida, Oregon, Washington, British Columbia and other parts of Canada will bring to an end a lengthy process undertaken by the board more than a year ago.

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