The Ode: CoolBrands (1986 - 2010)

It was once the hottest thing in chilled deserts. But an oversized appetite for acquisitions and poor corporate governance put the company on ice.

CoolBrands International Inc., once North America’s third-largest ice cream company, began as a frozen yogurt stand in a mall north of Toronto in 1986. Brothers Michael and Aaron Serruya, then aged 20 and 18, launched the kiosk after Aaron noticed the popularity of frozen yogurt on a trip to Florida. They dubbed their fledging venture Yogen Fr??z.

The brothers franchised the concept, and by 1995, there were more than 900 locations across the world. They took Yogen Fr??z public that same year and used the proceeds for an acquisition binge, spending millions on a coffee chain, another yogurt line, and a frozen dessert franchiser. The media hailed the affable pair as wunderkind entrepreneurs.

In 1998, the company merged with a U.S. firm that marketed frozen desserts in grocery stores. The deal brought a number of challenges. CoolBrands was now competing with giants Nestle SA and Unilever for shelf space in stores, and it soon began to accumulate debt. The Serruya brothers also granted themselves multiple voting shares, despite holding a minority equity stake, much to the displeasure of investors. But the year 2000 marked a crowning achievement for the company, which by then had changed its name to CoolBrands. It bought the venerable Eskimo Pie Corp., the Virginia-based creators of the iconic chocolate-covered ice cream bar.

Even so, the company was plagued with questions about its accounting, and investors continued to grumble about the voting shares and the fact that executives did not hold regular analyst conference calls. Profits began to fall due to rising costs and a widespread discounting policy, and CoolBrands turned in huge quarterly losses in 2000, largely because of store closures. Michael resigned as co-CEO but remained co-chairman. His brother stayed on as executive vice-president.

CoolBrands was saved from an early demise by the Atkins diet craze that boomed a few years later. As part of the Eskimo Pie acquisition, CoolBrands owned the licence for Weight Watchers diet ice cream snacks. It later scored a licensing deal for a line of low-carb ice cream, and sold a diet version of Eskimo Pies. A series of acquisitions, including buying the rights to Godiva premium ice cream, catapulted CoolBrands into the top tier of ice cream companies.

The unravelling, however, came quickly. Weight Watchers did not renew its licensing agreement with CoolBrands, and investors fled upon hearing the news in 2004. No other brand in its portfolio could make up for the hugely profitable line. Nestle and Unilever slashed prices, forcing CoolBrands to follow suit. Losses built up, and a CoolBrands subsidiary nearly ended up in bankruptcy as it struggled to pay down debt. Michael took over again as CEO in 2006 and spent US$21.7 million of his own cash to appease a lender. He then embarked on a massive asset sale to pay back the money owed to him and other lenders.

Nearly everything was gone by the following year. The company was a husk with US$64.7 million in cash, admitting defeat in the competitive frozen treat market. There were rumblings that Michael would use CoolBrands for another food-related venture, but last month, the company announced a merger with Swisher International Inc., a U.S. hygiene products and services company. The deal is essentially a way for the privately held Swisher to go public. The CoolBrands name will be erased, removing the last traces of the former ice cream giant.

The company’s brands, however, live on. The Promenade Mall north of Toronto, where the Serruya brothers got their start, still houses a Yogen Fr??z. The mall manager says it is very popular.