Friday, August 06, 2004

Coolbrands, Again

Okay, here's the thing.

Coolbrands could not renegotiate with weight watchers a new deal for a certain line of products known as Smart Ones. From what I understand, Coolbrands wanted to have its own logo somewhere on the product, and WW wanted none of that. Now I don't understand the problem too well (I do have a degree in business), but it seems this could be one of those typical business/ego problems. I'll explain:

Smart Ones represents 25% of all coolbrands' revenue, and now it is flused down the toilet and for what? Because their logo isn't on the packaging? Seriously, who cares? I couldn't tell what the Coolbrands logo is and I usually get something from Yogen Fruz every day! And that's a coolbrands' subsidiary!

So what is driving this need? Could it be the same thing that drives companies to merge without rhyme or reason? Synergy? Economies of Scale? Complimentary Technologies? Tax advantages? or....since most big time mergers are unbelievable failure, is it the ego of the people at the top?

Until I read/hear a persausive argument otherwise, this is a bad idea. Coolbrands has eliminated a successful product from its lineup for nothing. And the fallout from this error is just beginning:

CoolBrands targeted in licence lawsuit
Weight Watchers suit anticipates contract violations Canadian frozen treats maker says case `unfounded'


A battle of the bulge is shaping up as Weight Watchers International Inc. takes CoolBrands International Inc. to court, alleging the Canadian frozen treats maker will violate a licence agreement if it continues to sell products carrying the diet company's name.

Michael Serruya, CoolBrands co-chairman, said yesterday the company will "vigorously defend" itself against the complaint because "we believe it's completely unfounded."

"The interesting thing is that they are alleging anticipatory breach by CoolBrands, so they're basically saying, `CoolBrands hasn't done anything wrong, but we anticipate that they may.'"

yikes. Here's the Coolbrands website.

And here's the TSX rundown of the stock.

Having said all that, this is an opportune time to buy Coolbrands because the market has essentially had a huge heart attack bordering on "holy cow everyone sell right now". Why has it gone from almost $23 to $10 in a month? Hysteria. Coolbrands is doubling its revenue and and profit on a yearly basis. This is a huge screw up for them, but the stock is now way undervalued.

Full disclosure: I own no stock in Coolbrands.

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