National Beverage Corp. Business Information, Profile, and History

Company Perspectives:

Flavors are the primary focus of the company, with superior quality as the masthead of the corporate philosophy. National Beverage's full line of branded, multi-flavored soft drinks, including colas, teas, bottled waters and juice products, satisfy a wide range of consumers.

History of National Beverage Corp.

A leading second-tier beverage company, National Beverage Corp. develops, produces, and sells branded soft drinks, juice products, and bottled water, distributing its products nationwide from 14 manufacturing facilities scattered throughout the United States. National Beverage acquired its first branded soft drink, Shasta, in 1985 and added Faygo, a regional brand, in 1987. With these two brands, the company began developing a diversity of flavored beverages, supplying its products to retail grocery chains, warehouse clubs, food service outlets, convenience stores, and vending machines. Other branded beverage products were added in later years, including Big Shot, a regional soft drink, Everfresh juice products, LaCROIX carbonated and still water, à Santé sparkling mineral water, Body Works, an isotonic sports drink, and Spree, an all-natural, carbonated soft drink. Unlike many of its competitors, National Beverage manufactures its own beverage products instead of contracting production to other bottlers. The operation of its own bottling plants allows the company to perform bottling services for private label brands, giving it an important secondary source of income. During the late 1990s, National Beverage was 77 percent-owned by its founder and chief executive officer, Nick A. Caporella.

Origins

Few companies in the history of business were created for the reasons that gave birth to National Beverage. At its founding, the company served as a mechanism to resolve an acrimonious struggle between two corporate barons, beginning as a hollow corporate shell whose sole purpose was to rid another company of an unwanted suitor. The dispute that eventually spawned National Beverage had its roots in the late 1970s, when a Fort Lauderdale company named Burnup & Sims Inc. was thriving as an installer of cable television and telecommunications systems. Headed by a Pennsylvania coal miner's son named Nick Caporella, the company was performing phenomenally well, demonstrating a level of profitability that delighted Wall Street and one investor, Miami financier Victor Posner, in particular. Posner watched Burnup & Sims's earnings nearly triple between 1978 and 1981 and decided to secure a piece of the rising profits. Posner began buying shares in Burnup & Sims, accumulating a sufficiently sized stake in the company to suggest to Caporella that a hostile takeover was imminent. Caporella was adamantly opposed to any interference or involvement on Posner's part and, as events unfolded, he displayed remarkable perseverance and ingenuity in parrying what he perceived as an assault by Posner.

At first, as Posner's holding in Burnup & Sims gradually increased, it appeared Caporella was unwilling to fight. In 1982, when Posner's stake eclipsed 29 percent, Caporella quit in disgust, vacating his chief executive position at Burnup & Sims and taking 17 executives with him. The cable television and telecommunications company kept its doors open with no one inside to run the company, but, at the urging of Burnup & Sims's board of directors, Caporella returned after a month and obtained a temporary federal restraining order to bar Posner from interfering with the company's business. The restraining order, however, was only a temporary measure. Caporella wanted to achieve more than keeping Posner at arm's distance; he wanted to eliminate all of Posner's influence. From Caporella's perspective, Burnup & Sims's survival depended on Posner's removal from any association with the company. When Burnup & Sims's earnings collapsed in 1982, Caporella complained, "Our operating subsidiary presidents stopped working. They felt humiliated." At fault, according to Caporella, was Posner, a "dark cloud" that threateningly loomed over Burnup & Sims's headquarters.

For the solution to his problem, Caporella searched for a white knight--a company willing to buy Burnup & Sims and thereby thwart Posner's threatening advances. He found no company willing to take on the role of Burnup & Sims's savior, but his search did lead to an effective, if somewhat confusing, solution. As Posner's percentage crept up to 43 percent, Caporella decided to create his own white knight and use his newly formed company to dilute Posner's ownership percentage in Burnup & Sims. National Beverage Corp. would be Caporella's white knight.

Through a partnership controlled by Caporella, National Beverage Corp. was formed in 1985. The partnership retained 55 percent ownership of the new company and sold 40 percent to Burnup & Sims for $38.2 million plus 1.8 million in new Burnup & Sims shares. The shuffle of stock put the new Burnup & Sims stock under Caporella's personal control and consequently watered down Posner's Burnup & Sims holding from 43 percent to roughly 35 percent. The strategy worked, but its execution also created the need to put National Beverage into business. To fulfill the second part of his plan, Caporella had his new corporate shell acquire Shasta Beverages from Sara Lee Corporation. National Beverage paid $40 million for the soda subsidiary plus the 1.8 million Burnup & Sims shares.

After this second flurry of transactions, National Beverage was a going enterprise, its existence tied to Burnup & Sims in what outside observers described as a sister-to-sister relationship. Caporella, now with two companies under his control, was pleased by the results, but Posner still controlled 35 percent of Burnup & Sims&mdashøo much in Caporella's view. He performed another securities trick, selling another 5.2 million new Burnup & Sims shares to National Beverage in June 1986, which further diluted Posner's stake to 23 percent. Caporella was overjoyed by the accomplishment, declaring, "It's like being reborn." Posner, however, did not make his full retreat until 1988 when Cincinnati financier Carl Lindner purchased Posner's shares and transferred them to Burnup & Sims. Caporella by this point had already turned his attention to National Beverage, deciding to rethink his operating strategy for Burnup & Sims while he worked to expand his new company. Intending to use Shasta as a foundation, Caporella aimed for a lofty objective, vowing to develop National Beverage into a $1 billion beverage company.

1987 Acquisition of Faygo

Caporella's bid to develop a billion-dollar beverage company began with Shasta, a national brand that was first sold in 1889. To broaden National Beverage's distribution coverage, Caporella next added Faygo, a popular carbonated beverage in the Midwest, acquiring the regional brand in 1987 from Tree Sweet Products Corp. The acquisition of Faygo, which first appeared in 1907, and Shasta also gave National Beverage 12 bottling plants scattered throughout the United States, each located near major markets. As the company moved forward, it used its bottling facilities to bottle its own drinks and to bottle private-label brands. The use of its own bottling plants--a luxury not all beverage companies enjoyed&mdash′ovided National Beverage with an important secondary source of income, as grocery chains turned to National Beverage for the production of their private-label brands and smaller, regional beverage companies contracted National Beverage to bottle their brands.

With Shasta and Faygo, Caporella controlled a beverage company with annual revenues in excess of $300 million, a total far below the billions collected by National Beverage's giant rivals, The Coca-Cola Company and Pepsi-Cola Company. The presence of these two conglomerates, whose corporate reach extended around the globe, dictated to a large degree the strategy employed by Caporella. Coca-Cola and Pepsi controlled an overwhelming share of the U.S. market, each holding such a dominant and entrenched position that they were, in effect, only in competition with one another. Second tier beverage companies like National Beverage could not realistically hope to usurp either of the two giants, which Caporella realized. He was determined to avoid a direct battle for national market share against either of the beverage industry's behemoths, and instead sought to carve a niche for National Beverage as a producer of flavored sodas

By the end of the 1980s, National Beverage was filling and labeling 1.5 million cans of soft drinks in its packaging plants and marketing these beverages in a rainbow of flavors. Financially the company was doing well, particularly in light of the weakened state both Shasta and Faygo were in prior to their purchase. Financial health, however, was not the only concern National Beverage faced during the late 1980s. A nagging issue, and one that drained National Beverage's financial strength, was the company's relationship with Burnup & Sims. In the aftermath of the struggle between Posner and Caporella, Burnup & Sims and National Beverage emerged as two companies woven tightly together. The transfer of stock from both Caporella-managed companies left Burnup & Sims owning 42.1 percent of National Beverage and made National Beverage a 55.6 percent owner of Burnup & Sims. Shareholders and outside observers had expected the two companies to be disentangled shortly after Posner sold the last of his shares in 1988, but it was not until April 1990 that a plan was announced for the separation of the companies. Although the unusually close relationship between the two companies had certain advantages for National Beverage, such as the use of Burnup & Sims's capital for expansion, the union created its own particular problems. Cross-management of the two companies had proven costly and intercompany debt also hobbled National Beverage's progress, making some resolution to the situation a necessity.

National Beverage a Separate Company for the 1990s

According to the plan first revealed in April 1990, National Beverage was to be spun off as a separate company and its stock offered for sale to the public. The long-awaited deal occurred in September 1991, but its completion only added fuel to yet another nagging issue. In the September 1991 attempt to separate the companies, National Beverage's ownership in Burnup & Sims was only reduced from 55 percent to 36 percent and only 23 percent of National Beverage was sold to the public, which prompted most institutional investors to shun the beverage company's stock. When the dust had settled, Caporella ended up owning 77 percent of National Beverage, making his original $1.6 million investment in National Beverage worth $38 million. Additionally, Caporella's $900,000-a-year salary was paid by Burnup & Sims, by the company some believed had been weakened in order to strengthen National Beverage. To make the situation more distasteful to some, Caporella received one percent of National Beverage's revenues to run the company, a salary that amounted to $3 million following the 1991 public offering. One Burnup & Sims shareholder had had enough, and filed a lawsuit against Caporella, charging that Burnup & Sims shareholders had suffered financially from Caporella's dealings. "He's Victor Posner's twin," railed the disgruntled shareholder, a Miami insurance agent named Albert Hahn who held 50,000 shares of Burnup & Sims stock. Caporella fought back, explaining, "If it wasn't for me, my cash, and my idea, we [Burnup & Sims shareholders] would have been left to the ruin and rape of Victor Posner. I took the gamble and bought a losing company [Shasta] with a dying brand. I would like to have the recognition of a doctor who performed an operation and saved a patient."

As had been the case since National Beverage's formation, publicly waged disputes attracted the bulk of attention, diverting it away from the day-to-day operations of the beverage company. Although the company's stock was not performing well because of the contentious squabbles punctuating its history, the company itself was making some headway. Amid the rancor surrounding him, Caporella was still intent on fashioning National Beverage into an industry heavyweight, declaring in 1992, "I am going to have a humongous big beverage company some day." At the time, National Beverage ranked as the sixth largest beverage company in the United States, but because of the enormous power wielded by Pepsi and Coca-Cola, sixth largest in the United States translated to a mere 1.7 percent national market share. Nevertheless, the company had flowered into a flavored-soda maker and added several brands to its portfolio since the 1987 acquisition of Faygo. Spree, an all-natural, carbonated soft drink, joined the company's fold by the beginning of the 1990s, and was followed by the acquisition of Big Shot, a regional, multiflavored soft drink line established in 1935. By 1992, the company was producing 108 flavors and 34 product lines, marketing more beverage flavors than any other beverage company in the world. Meanwhile, National Beverage's private-label bottling business had received a tremendous boost in 1991 when the U.S. Navy contracted the company to produce the Navy's own private-label brand of soft drinks called "Sea."

By the mid-1990s, National Beverage had increased its stature within the U.S. beverage industry, becoming the nation's fifth largest producer in 1996. By this point, the company had diversified into the production and sale of teas, bottled water, and juice products, adding to the scores of soft drink flavors it produced. The company's diversification into non-carbonated beverages gained its greatest momentum from two acquisitions completed in the mid-1990s, the purchase of WinterBrook Corp. and Everfresh Beverages Inc. WinterBrook, a Bellevue, Washington-based company, operated as the holding company for three brands, Cascadia, WinterBrook Clear, and LaCROIX, a brand of carbonated and still water. LaCROIX was the most important addition to National Beverage, giving the company a branded water beverage that ranked as a top seller in several Midwestern markets and enjoyed a noticeable presence on airline beverage carts. The acquisition of Everfresh moved the company solidly into the juice production business, helping Caporella to shape National Beverage into what he described as "a total beverage company."

By 1998, sales had surpassed $400 million, far below the $1 billion goal Caporella had been aiming for during the previous decade. Although the late 1990s did not see Caporella sitting atop the "humongous big beverage company" he was hoping to create some day, National Beverage was enjoying annual sales growth of roughly 10 percent as it prepared for the 21st century. With this encouraging growth propelling it forward, and a consistent record of profitability supporting it, National Beverage and its growing roster of brands appeared solidly positioned for the years ahead.

Principal Subsidiaries: BevCo Sales, Inc.; Big Shot Beverage Co.; Everfresh Beverages, Inc.; Faygo Beverages, Inc.; LaCROIX Beverages, Inc.; National BevPak; National Retail Brands, Inc.; PACO, Inc.; PETCO, Inc.; Shasta West, Inc.; Shasta Beverages, Inc.; Shasta Beverages International, Inc.; Shasta Food Services; Shasta Military Sales; Shasta Midwest, Inc.; Shasta Northwest, Inc.; Shasta Sales, Inc.; Shasta Sweetener Corp.; Shasta USA; Shasta Vending; Winnsboro Beverage Packers, Inc.