Suffer for their synergies

In 1982, the big US beer distributor Anheuser-Busch bought Campbell Taggart, a Dallas-based manufacturer of bread and snacks. It paid $560m, about $110m more than Campbell Taggart’s market value at the time. But Anheuser-Busch’s executives were confident that they could sell far more pretzels and cookies through their superior distribution and marketing channels than their new bakery division could have done alone. The extra profits would easily justify the purchase price, including the hefty premium.

It didn’t turn out that way. What Anheuser Busch’s managers failed to recognise, according to Mark Sirower in his landmark 1997 book The Synergy Trap: How Companies Lose the Acquisition Game, was that beers and snacks were traditionally sold on different shelves in supermarkets. They were also bought by stores according to different ordering schedules. While Anheuser-Busch’s distributors had built up impressive expertise in marketing beer, they didn’t want to change the way they did things just to accommodate potato chips and nuts. Meanwhile, Anheuser-Busch’s rivals were not going to wait around. Frito-Lay, part of PepsiCo and the US snacks market leader, attacked with new products and price cuts. In 1996, after years of losses, Anheuser-Busch spun off Campbell Taggart, shut down the rest of its snacks division and sold its four main plants to Frito-Lay.