Coke, Pepsi and Pesticide


RACY CASES-5

V Pattabhi Ram

For a change China wasn’t sipping coffee, Muscles wasn’t gobbling pizza and Wafers, the CA Intern, wasn’t having her mandatory bite of French fries.  Instead, the gang was hot on soft drinks; one sipping Coke, the second sipping Pepsi and the third tasting some version of colored water – none knowing the difference. Wafers tired after a long day at audit, mixed up China’s coke, Rinku’s Pepsi and added salt to the cocktail. “What the hell; this isn’t good for health” fumed the medical intern with the hungry look, Muscles.  He had always abhorred soft drink ever since his chemistry professor had told them about aerated water and gastric trouble.  “Hey, hold on”, screamed China, his IIT mind racing like mad.

“How would it be if Coke and Pepsi merged first at the national level in India and later globally as well?” he asked. “Wow!” said Rinku, his journalist brain sensing a scoop where none existed. “Their ad budgets would come down by half,” he pointed out.  Muscles, crazy about cricket, said “half the cricketers would go out of business.”  China added, “With the two big boys marrying the marketing department can be slashed by 75%.”  For Wafers the coin clicked.

“Gain from synergy, ie 2 plus 2 adding to more than 4, is what drives M&A” the professor’s colorful slide had shown while she was staring out of the window watching the drizzle. How true.  “But there would be no competition because between them Coke and Pepsi would have taken over the entire market” demurred Rinku, his mind for once working.  “And that isn’t a good thing for society” remarked Wafers, recalling the article that she had read in HBR on the pros and cons of monopoly and competition. “But overwhelming volumes will bring about economies of scale and could actually drive prices southwards” said China. Wafers wasn’t convinced.  With no competition there could only be more pesticides and more prices, she scorned.  “Look at the magic that Air Deccan has caused in the airline industry” said Muscles. Without competition would prices have come hurtling down?  Without competition would service have gone up? Would airhostesses of Indian Airlines smiled?  Fat chance.

“Auditor”, screamed Rinku, “how would the numbers stack up?”  He was hungry for a headline.  “Suppose they save annually Rs 1000 crores because of the merger (nobody knew how she landed up with the figure), suppose this figure would rise annually by 5% (“inflation rate”, she patted herself on her back, for remembering that) and suppose the time value of money is 15% the value of the merger would be Rs 10,000 crore”.  As Rinku looked at her with awe and she glowed in the halo, China winked, “That’s the present value of a growing perpetuity”.   Wafers was stumped.  This IIT fellow seems to know everything she told herself. Rinku asked, “Rs 10,000 is only a ballpark figure, isn’t it?  It could be even Rs 100,000 crore if the annual savings was Rs 10,000 crore”?  “Yup” said China and added “1 lakh crore would be almost 10% of India’s GDP”.  Rinku got his headline “Pepsi merges with Coke to create India.”  Wow.

Why aren’t they then merging wondered the reporter.  As if reading his mind China said, “because there is no guarantee that it would click.”  Remember, all these years the two companies had referred to each other as “We” and “They”.  How could the duo now get to work together?  Working together requires an abundance mentality and beyond a point people tend to lose that. For Wafers the coin clicked.  Her professor had explained the antagonism between Coke and Pepsi that he had picked in the course of a consulting assignment. If a Coke employee is found sipping Pepsi anywhere in the world he is sacked pronto.  The hate was mutual.  If a Pepsi employee is found sipping Coke, anywhere in the world, he is sacked forthwith, the professor had said.  Under such “mutual hostility, bruised sentiments and wild ego trips” there would be no meeting of minds.  “What if one of them walked the extra mile?” asked Rinku. “Well both will have to do more than that,” remarked China.  “If some bigness is good, an over abundance of bigness is not necessarily better” said Muscles, paraphrasing a lesson that had been taught in Anatomy. Wafers remembered how the mother of all mergers, Time Warner with AOL, had ended up with the merged entity reporting the largest loss ever in the history of financial reporting!  “Some things just don’t work,” mused Rinku.  But if it has worked in politics, which makes for strange bedfellows, why not in business asked China.  “Because,” remarked Muscles, “while politics may be business, business is not politics”.

Wafers’s mind wavered.  Of course there were other issues she thought. What if the merger actually worked?  Well, the government would have to step in and stop it.  After all, a private monopoly is as bad as a public monopoly.  Remember how Microsoft had consistently killed the competition and invited the Anti Trusts Law?  Muscles had a different take.  “What the hell if there were no aerated drinks at all?  Would there be a heart attack?” he asked aloud.  Couldn’t both of them be asked to pack off?   May be he had a point or two thought Wafers.  “Business is not about making profits.  It is about leaving footprints on the sands of time” her professor had said.  If you want to travel the distance from good to great you have to do more than just color the waters he had remarked in his inimitable style.

First published in the Hindu Business Line

Advertisements

About Pattabhi Ram

A chartered accountant by profession, a writer by passion and a teacher by accidental choice.
This entry was posted in Racy Cases and tagged , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s