21. Coca-Cola’s Failure to Buy Pepsi When it Could Have Turned Out to Be a Bad Business Decision
In hindsight, Coca-Cola’s refusal to buy Pepsi – more than once – turned out to be a bad business decision that the company came to regret. Charles Guth turned Pepsi around within just two years after he had bought it, and transformed it into a profitable enterprise. By 1936, Pepsi sold about half a billion bottles a year and established itself as the second-largest soda company – behind only Coca-Cola. It was right around then that Loft Inc. accused Guth of breach of fiduciary duty, and sued him. The Delaware Supreme Court eventually agreed with Loft and established what came to be known as the “Guth Rule” in American corporate law.
The rule prohibits corporate representatives from taking personal advantage of business opportunities that could have been exploited by their employer. Loft seized Pepsi from Guth in 1939, concentrated on the drink, and spun off the non-soda businesses in 1941. The Pepsi brand continued to grow, and eventually merged with Frito Lay in 1965, to become PepsiCo. That new company went on to finally eclipse Coke in sales in the 1980s, and in 2005, PepsiCo surpassed the Coca-Cola Company in market value.
