Swallowed Up

Dr Pepper finds a buyer

Although it has long had a loyal following among soft-drink guzzlers, 98-year-old Dr Pepper (1982 sales: $516.1 million) has gradually been losing its fizz. The company's namesake Dr Pepper brand fell from 5.4% of the soft-drink market in 1981 to 5.1% last year. Moreover, the Dallas-based firm knew things might continue getting worse because it lacks the financial and marketing clout to compete effectively against the soft-drink industry's giants: Coca-Cola (1982 sales: $6.2 billion) and highly diversified PepsiCo (1982 sales: $7.5 billion). So, taking a hint from one of its old commercials, Dr Pepper has been looking for a friendly pepper-upper. Last week the company found one. Dr Pepper agreed to be acquired for $512.5 million by Forstmann Little & Co., a closely held New York investment firm.

The deal was the second major purchase in two days for Forstmann Little, which was formed in 1978 by Wall Streeter Wm. Brian Little, now 41, and the brothers Forstmann: Theodore J., 43, and Nicholas C., 36. The day before, the firm had agreed to buy Topps Chewing Gum (fiscal 1983 sales: $69.7 million), makers of the famous baseball cards, for some $95 million. Last January Forstmann Little paid about $100 million for Beverage Management of Columbus, a bottler of Seven-Up and Royal Crown Cola. Said Emanuel Goldman, a leading beverage analyst with San Francisco-based Montgomery Securities: "They truly have a full-scale commitment to the U.S. soft-drink industry."

Some observers doubted, however, that Forstmann Little would have much impact on Dr Pepper. Says Hugh Zurkuhlen of Wall Street's Salomon Brothers: "It's unlikely that Forstmann Little is going to make a big national push with Dr Pepper." Brian Little said the beverage company's officers, including Chairman W.W. Clements, 69, will remain on the job following the acquisition. "We are owners only," Little noted. "We don't get involved in management."

The biggest gainers in the deal will be Dr Pepper shareholders and Lazard Freres, the Wall Street investment banking house. Stockholders will receive $22 each for shares that were worth about $15 only two weeks ago. Lazard Freres, which put the deal together, will walk away with $2.5 million for services rendered. This file is automatically generated by a robot program, so viewer discretion is required.