The Coca-Cola Company announced today that it will buy Glaceau, the maker of Vitaminwater, for $4.2 billion in cash.The acquisition has been expected for weeks, as Coke pursued Glaceau, which is also known as Energy Brands, to upgrade its portfolio of noncarbonated beverages, the sales of which have been growing much faster than soda in the United States in recent years.In a statement, E. Neville Isdell, the chief executive of Coke, said: “Glaceau has built a great business with high-quality growth, as well as a strong pipeline of innovative products and brands. We envision even faster growth for Glaceau as part of Coca-Cola’s enhanced range of brands for North American customers and consumers.”While the price tag is substantial for a company with earnings in 2006 of about $350 million, analysts said the cost in avoiding the deal, given Coke’s relatively weak position in noncarbonated beverages, could also be high.It may also exorcise some ghosts in Coke’s past. For the last decade or so, Coke, which has 43 percent of the soda market in the United States, compared with 31 percent for the rival PepsiCo, has lagged behind in introducing noncarbonated beverages.
It was late in introducing bottled water to the market. And in 2000, Coke’s chief executive signed a deal to buy Quaker Oats that included Gatorade, but the board turned him down. Quaker was then swept up by PepsiCo.This year, PepsiCo’s share of the noncarbonated beverage industry in the United States — which includes bottled water, sports drinks and juice — was 50 percent. Coke’s market share was 23 percent, according to the trade publication Beverage Digest, which first reported the negotiations last month.William Pecoriello, an analyst with Morgan Stanley, called the acquisition, a “potential game changer” in the market for noncarbonated drinks. “It would fill a major gap in it’s noncarb portfolio,” Mr. Pecoriello said last week in a note to investors.Glaceau also makes Fruitwater, an energy drink called Vitaminenergy and Smartwater, which contains electrolytes. Mr. Pecoriello said the sale of Glaceau’s products could be expanded overseas. The jewel of Glaceau is Vitaminwater which is vitamin-fortified and offered in flavors.
It is among a fast-growing category known as functional foods, which market themselves as offering an additional benefit beyond basic nutrition. Energy drinks fortified with ginseng, orange juice with added calcium and yogurt with live bacteria called probiotics are examples of fortified foods. Each bottle promises a specific benefit. Kiwi-Strawberry flavored Vitaminwater, for example, promises “focus” and “healthy support for eyes and skin” with Vitamin A and lutein, described as a natural antioxidant that protects against eye disease. There is also a Vitaminwater with green tea extract, which promises to “rescue” because of its purported cancer-fighting properties. Glaceau’s Web site says, “Welcome to the Center for Responsible Hydration.” The company was founded in 1996 by J. Darius Bikoff, who remains chief executive. He could not be located for comment.Glaceau is based in Whitestone, Queens. Last year, an Indian tea company, Tata Tea, bought a 30 percent in Energy Brands for $677 million.
At that time, a Tata executive told Dow Jones that Glaceau’s revenue for the year would be $355 million and would jump to $700 million in 2007. The company sold 77 million 192-ounce cases last year, a standard industry measure, according to Beverage Digest, a 103 percent increase over the previous year. By contrast, Coca-Cola sold 5.5 billion cases in the United States alone.When he took over as chief executive in 2004, Mr. Isdell, a longtime Coke executive who had retired to Barbados, said his turnaround effort would focus on ironing out turmoil within the company, improving morale and focusing on rebuilding its core soda brands. He also vowed to improve the company’s innovation pipeline. But once the company was stabilized, Mr. Isdell said he would be prepared to make more transformational acquisitions.“It’s the right play,” said Tom Pirko, president of Bevmark, a consulting firm to the food and beverage industry, including Coke. “When you look at what’s happening with Coke, they can’t innovate their way out.
They have to buy their way out.”In America, soft drinks account for 67 percent of the nonalcoholic beverage business, with bottled water making up 17 percent and other noncarbonated beverages, 16 percent, Beverage Digest said. But in 2006, soft drink volumes declined slightly while bottled water was up 17 percent and other non-carbonated drinks increased 13 percent.(This article is a repost, but with the news of 50 Cent filing for bankruptcy it seems that a lot of people are searching for this story…) Thirteen years ago, a 25 year old up-and-coming rapper named Curtis "50 Cent" Jackson was shot nine times at point blank range while sitting in the back of a car outside of his grandmother's house. As if coming within a heartbeat of dying wasn't traumatizing enough, just a few weeks later 50 Cent's dreams of being a famous rapper were crushed when Colombia Records dropped him from the label and permanently shelved his upcoming debut album. Somehow, 50 Cent managed to re-build his physical and mental strength to the point where within a few years he was the number one rapper in the world with an album on its way to selling 15 million copies around the world.
Amazingly, not only did 50 Cent take over the music world, he also launched an incredibly lucrative business empire that earned him a well-deserved fortune today. One of 50's biggest paydays came after he famously took equity in place of a huge salary to promote the sport beverage company Vitamin Water. But how did a relatively young and extremely controversial artist like 50 Cent land that deal in the first place? And exactly how much money did 50 Cent make when Vitamin Water was eventually bought out by Coca-Cola?This story is the unofficial sequel to a story we posted yesterday titled "How Did 50 Cent Go From Nine Shots To Nine Figures?" 50 Cent's Vitamin Water story is so fascinating that we decided it deserved a full of article of its own.On March 8, 2003, 50 Cent's debut album "Get Rich Or Die Trying" was released on Shady/Aftermarth/Interscope Records. Thanks to the highly popular single "In Da Club", the album shot to the #1 spot on the Billboard 100 chart and stayed there for nine straight weeks.
Between March and July the album sold an impressive 5 million copies in the United States alone and would eventually sell over 15 million records world wide.This news was actually bitter sweet for 50 Cent's manager Chris Lighty. Just a few months earlier, Lighty and his company Violator Management agreed to forfeit half of 50 Cent's music profits in order to secure his deal with Shady records. They would never have agreed to this loss if they hadn't already been rejected by every single major record label in America due to 50's violent and controversial reputation. On the bright side, Lighty and Violator still would receive a 15% managers fee on any money (including music sales) that 50 Cent brought in as a client.Losing that large chunk of 50 Cent's music sales was actually a blessing in disguise. Missing out on tens of millions of dollars in royalties lit a fire under the ass of Chris Lighty and the entire Violator team. As 50 Cent's fame skyrocketed around the world, Violator moved quickly to sign dozens of extremely lucrative endorsement deals.
But these weren't your average endorsement deal. In order to really make up for their losses, Violator went on a mission to make deals with companies that offered both a large salary up front AND back end equity stakes for 50 Cent. Pretty soon 50 Cent was raking in tens of millions as endorser/owner of a clothing line, G-Unit Records, a ringtone company, a video game, a movie studio and more.Meanwhile, a veteran beverage company executive named Rohan Oza was watching TV happened to see a Reebok commercial starring 50 Cent. Rohan Oza had recently left Coca-Cola where he personally oversaw the revitalization of both the Sprite and Powerade brands by targeting urban consumers with creative and forward thinking partnerships and ad campaigns. Rohan was now the brand manager for a company called Gleceau which owned a fledgling sports drink called Vitamin Water. To Rohan's shock and amazement, at the end of the Reebok commercial 50 Cent took a big swig of Vitamin Water:After growing up around alcoholics and drug addicts, 50 Cent does not drink alcohol and is a total health nut.
He was introduced to Vitamin Water by a personal trainer after complaining about having to drink bland water all day. Therefore 50 Cent wasn't paid a penny to plug Vitamin Water in the Reebok ad, he was just a big fan of their product. Actually, that wasn't the whole truth…Chris Lighty and Rohan Oza were old business acquaintances. Lighty and Violator arranged for their client A Tribe Called Quest to appear in Rohan's revolutionary "Obey Your Thirst" campaign for Sprite. That campaign was the first time African-American hip-hop artists were used to endorse a major soft drink brand directly targeted directly at urban consumers. "Obey Your Thirst" was such a huge success that it literally saved Sprite from the brink of death.Chris Lighty came up with idea for 50 Cent to take a swig of Vitamin Water in the Reebok ad knowing full well that Rohan would see it and fall out of his chair. That's exactly what happened. After seeing the commercial, Rohan Oza arranged for 50 Cent and Chris Lighty to come to Vitamin Water headquarters.
By chance, Vitamin Water's headquarters were located in Queens, NY, just a few blocks from where 50 Cent grew up. When the meeting was done, 50 Cent agreed to be Vitamin Water's first celebrity endorser in exchange for a $5 million fee and a 5% equity stake in the company.Keeping in line with the idea that this partnership was destined to work, when the deal was struck Vitamin Water was in the middle of brainstorming names for their new flavor that contained 50% of the FDA recommended daily allowance of vitamins. Shortly after, Formula 50 was born. Within months the world was inundated with commercials, posters, bus ads and radio spots featuring 50 Cent as the pitchman for Vitamin Water.The 50 Cent campaign was a massive success and launched Vitamin Water on a global scale. Within a year, Vitamin Water's sales exploded to the point where it controlled 30% of the U.S. sports water market. Annual revenues grew from $100 million, to $355 million to $700 million between 2005 and 2007.On May 25, 2007, Rohan Oza's old company acquired Vitamin Water's parent company Glaceau for a mind-boggling $4.1 billion in cash.