Ocean Spray downgraded as tension rises before annual meeting
Ocean Spray Cranberries has damaged the co-operative's credit
rating, and could distract management from focusing on being more
competitive, said analysts this week.
Standard & Poor's lowered the privately owned cooperative's long-term corporate credit rating to 'BBB' from 'A-' and its short-term corporate credit rating to 'A-3' from 'A-2'.
The analysts said the downgrade follows the recent announcement by a group of growers, which represents more than 16 per cent of Ocean Spray's stock, that they will likely propose replacing the current 12-member board of directors with a smaller 11-member board at the annual meeting in early March.
This would be a repeat of last year's events, when the then-current board of directors was ousted by a group of growers who wanted the company to explore new strategic options, such as divesting its juice brand.
Ocean Spray, which is North America's leading producer of canned and bottled juices and juice drinks, also received an $800 million bid from Northland Cranberries, the next largest competitor, last year which was unanimously rejected. A large group of directors wants to keep the cooperative independent.
However it is under pressure to compete in the multinational beverage sector and the current board, elected in March 2003 with a new CEO and Morgan Stanley to assist the cooperative in various strategic options, is still reviewing proposals for a joint venture where a partner would take a minority stake.
It has already rejected a sale of the well-known juice brand in mid-January this year.
Ocean Spray also has a growing ingredients business, which has seen strong sales growth in new markets, such as southern Europe, on the back of increasing awareness of the health benefits of cranberries. Overall the group posted fiscal 2003 net sales of nearly $1 billion, showing recovery from the problems of cranberry oversupply and low prices seen in the 1990s.
But management issues could hold back growth, according to Standard & Poor's, which said it "is extremely concerned by the continued division among the cooperative's membership over the direction of Ocean Spray".
The agency added that this tension between independence and interest in other options is "a major distraction to the management team at a time when the firm needs to focus on its brands and product innovation in the highly competitive beverage market, especially given the softness in the juice category and despite fairly strong credit protection measures".
