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The incredible shrinking ice cream company Add to ...

Michael and Aaron had settled into different roles. Michael was chairman, CEO and strategist. Aaron was the No. 2, concentrating on franchising. The risks the company had taken on notwithstanding, the smiling and enthusiastic Serruyas and the Yogen Früz story were hard for Bay Street to resist. In the summer of 1997, Yogen Früz's share price soared above $6. An even bigger leap lay just ahead.

"It catapults our company into an entirely new playing field," said Michael Serruya in October, 1997. He was announcing Yogen Früz's merger with Integrated Brands Inc., a Long Island-based company that marketed frozen treats such as Tropicana juice bars and Betty Crocker desserts under licence. The stock-swap deal essentially doubled Yogen Früz's annual revenues, to $90 million. More important, Integrated's customers were mostly big stateside retailers like supermarkets. These customers offered the prospect of much higher revenues than franchisees did. But again, the game was getting riskier: Going into grocery stores meant battling giants such as Nestlé and Unilever for limited shelf space.

Michael Serruya and Integrated Brands' CEO, Richard Smith, agreed to share the chairman and CEO jobs. Smith, then in his mid-50s, looked like an ideal complement to the youthful Serruyas. "He was a crusty, tough, New York-style businessman-larger than life," recalls a CoolBrands insider. Smith's grandfather had sold milk from the back of a horse cart, and Smith seemed to have the ice cream business in his blood. He worked 18 to 20 hours a day. Bottles of Pepto-Bismol were a fixture on his desk.

The Serruyas and Smith played hardball with shareholders to entrench 10-for-1 multiple voting shares, which allowed them to maintain control of the company while owning less than 15% of its equity. Out of a total of 7.5 million multiple voting shares, the Serruya family received 4.7 million. Another 1.8 million were divided among Smith, his son David, and David Stein, an Integrated Brands vice-president who was a mild-mannered alter ego to Smith senior. The junior class of shares, numbering 35 million, had just one vote apiece. The upshot was that the handful of insiders had far more votes than all the other shareholders put together. Shareholder rights activists such as Toronto's Fairvest Inc. cried foul. Michael Serruya threatened to scuttle the deal if shareholders didn't accept it-and offered them a 5% premium if they did. "If you liked the merger, you had to swallow the garbage with it," Fairvest president Bill Mackenzie said later.

The deal went through in March, 1998, and Yogen Früz's share price shot up from about $10 that month to a peak of $14.30 in May. But more flare-ups with Bay Street soon followed, and a long, punishing slide in the share price commenced. That September, a Dow Jones report questioned the company's accounting, driving the share price down 16% in one day. The report said the company had fudged its cash position by putting off paying $4.5 million of the cost of an acquisition, Golden Swirl Frozen Yogurt, until the day after the end of its 1997 fiscal year. Yogen Früz responded by saying it had complied with accounting rules.

The company's bid to buy its way into the freezers of America would continue to unfold choppily-though not for lack of targets in the fast-consolidating sector. None other than Eskimo Pie Corp., which had invented the chocolate-coated ice cream bar in 1921, was particularly inviting. The Virginia-based company was ailing, which spelled cheap. In November, 1998, Yogen Früz launched a $36-million (U.S.) takeover bid-$10.25 (U.S.) a share. Eskimo Pie's directors balked, and even refused a $13 (U.S.) bid in December. The battle dragged on, with the directors hoping to keep their company, or at least attract a higher bid. But nothing satisfactory emerged, and in May, 2000, the 18-month contest ended when they agreed to sell for the original price of $10.25 (U.S.).

Along with a high-profile retail brand-one that it owned outright, rather than under licence-the Eskimo Pie acquisition gave the Serruyas yet another risk to contend with. "The business had always been debt-free up until that point," says a source within the company. After the merger with Integrated Brands, "the psychology changed a bit. In order to take the company to the next level, we needed to take on some debt"-$30 million (U.S.) borrowed from Chase Manhattan Bank.

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