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The Boston Herald
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Divisiveness bogs down Ocean Spray

Boston Herald Column by

Cosmo Marceo, Jr.

3/3/04

The big soft drink makers would practically kill for a brand such as Ocean Spray - for years the dominant U.S. name in bottled and canned juices.

But as the 70-year-old company's latest internal war played out in a proxy fight yesterday, you had to wonder if some force is actually bent on simply killing it.

The cooperative of some 800 Ocean Spray growers, based in Lakeville, acts much like a closely held stock company.

Yet it's been bitterly divided over how best to attack the future ever since nine board members were ousted last year in a proxy driven shakeup. All that was old became new again yesterday, as a minority group of growers descended upon Florida to once again demand new leadership at the Ocean Spray annual meeting.

The current regime - led by chairman Robert Rosbe Jr. - was predicting victory last night in staving off another upheaval, though votes won't be certified for another week. The Rosbe-led board of 12 would expand to 15 members under a compromise plan approved by owner growers, with additional members of the minority group joining the board.

Still, any notion that a status quo approach is the answer to competing with Coca-Cola and Pepsi would be a huge mistake.

The soft drink giants have aggressively moved into the single-serve juice market - an area of considerable growth potential in which Ocean Spray is weak.

Yet the realities of staying relevant have caused fits within the cooperative. An $800 million bid for Ocean Spray, from rival Northland Cranberries of Wisconsin, was rejected last year.

And growers from Wisconsin and New Jersey launched the most recent proxy battle to block even a minority stake sale or strategic partnership.

The turmoil is taking a toll.

Last month, Standard & Poor's downgraded its long-term credit rating on Ocean Spray.

The rating house said on Feb. 17 that the upheaval is "a major distraction... at a time when the firm needs to focus on its brands and product innovation."

The message couldn't be clearer: Get your act together.

"I think it's finally dawning on the (minority) group how divisive this looks to Wall Street and the business community in general," says Hal Brown, whose family grows cranberries in Middleboro for Ocean Spray.

Says Tom Lochner, executive director of the Wisconsin State Cranberry Growers Association: "The growers need to resolve their issues, and the industry needs a strong leader. Ocean Spray has been a strong leader in the past."

Brown says the Wisconsin and New Jersey growers - who do more volume than Ocean Spray growers in Massachusetts, on the West Coast and in Canada - are wary of outside partners.

The minority growers all but confirmed this in giving notice of the proxy fight in January, when they pleaded to maintain "a strong and independent Ocean Spray."

"Ocean Spray should always seek new, mutually beneficial relationships," the group said.

"However ... the current board ... appears to be deeply committed to strategic options that would result in the sale of the very asset that has made our cooperative strong - its premium brand."

Indeed, the familiar Ocean Spray wave - already good for $1 billion in annual sales on the strength of supermarket and foodservice dominance - would almost certainly be a juggernaut in the single-serve market with the required capital investment and access to distribution channels.

The smart move: The window may have shut for big-money alliances with either Coke or Pepsi. That leaves as potential investor/ partners Vestar Capital Partners - a management buyout firm

with stakes in such consumer brands as Celestial Seasonings and Birds Eye Foods, and Kohlberg Kravis Roberts & Co., with past investments in Beatrice and RJR Nabisco.

The next big battle: How much control over the sacred Ocean Spray brand will the growers actually deal away? Recent history suggests another ugly episode is possible.

But if the votes are indeed there, figure this is the direction the expanded board will pursue.

Because even in Wisconsin, they have to know things aren't right as they are.