Quaker Oats Co. announced yesterday that it will buy Snapple Beverage Corp. for $1.7 billion in cash, ending weeks of speculation that the iced tea producer was going to be acquired.

The acquisition would be the largest ever by Chicago-based Quaker, which is making an effort to refocus on its core food divisions. While best known for its hot cereals, Quaker also owns such brand names as Rice-A-Roni, Celeste pizza and Gatorade sports drinks.

Gatorade is the leading U.S. sports drink, with $1.2 billion in annual sales. With the addition of Snapple's projected 1994 revenue of $700 million, Quaker Oats would become the third-largest maker of nonalchoholic beverages, behind PepsiCo and Coca-Cola Inc.

But Quaker stockholders reacted unfavorably to the announcement, driving its stock price down $7.37 1/2 to $67.12 1/2 on the New York Stock Exchange. Quaker acknowledged that the acquisition would dilute its earnings in the near term, but said it would have a positive influence on the bottom line by 1998.

Snapple shares fell 50 cents to $13.75.

The agreement ends the roller-coaster performance for Snapple of East Meadow, N.Y., which has led the boom in all-natural -- also known as "new age" -- beverages, such as ready-to-drink iced teas and other fruit-based drinks.

Snapple gained fame partly through the promotion of its products by radio and television personality Howard Stern and through its clever television ads featuring a nondescript Snapple employee known as the "Snapple Lady." Snapple also has been featured in popular television shows, such as "Seinfeld."

After going public in December 1992 for about $5 a share, adjusted for stock splits, the company's stock soared to a high of $32.25 in February. But lately the stock has been buffeted by increased competition in the non-carbonated beverage market, especially ready-to-drink iced teas, and by its own falling profit margins.

Although still profitable, Snapple's earnings in the last two quarters have been below analysts' estimates. Its stock has been trading for around $15 a share for several weeks, slightly higher than the price Quaker is paying for the company.

Seven Snapple shareholders filed suit against the company yesterday, contending that the purchase price was too low. But holders of 68 percent of the company's shares -- the owners of the company -- already have agreed to the sale.

"I think that they are cashing out at an inappropriate time," said Stuart Brown, a beverage industry analyst at Brenner Securities in New York. "Even if you have a bad quarter, if you have a well-accepted product and a valuable consumer franchise, and you're at the beginning of your growth curve, that commands a certain value alone."

Brenner said he had expected the stock to rise again. The only investors who made money on the deal were those who bought the stock within six months of its initial offering, he said.

But other analysts said the company's disappointing earnings would have pushed the stock into single digits were it not for the Quaker deal.

"I think the price here was a fair price," said Roy D. Burry with Kidder Peabody Group Inc.

Many analysts agreed that both companies will benefit from the union. Snapple will get access to Quaker's considerable distribution network, financial backing and bottling technology, while Quaker will reap the benefits of Snapple's successful image and its experience devising flavors.

Snapple's only comment on the takeover came in a statement. Leonard Marsh, the president and chief executive of Snapple, said Quaker has "the resources and management skills to take Snapple to the next level of success."

QUAKER OATS

Headquarters: Chicago

Employees: 20,000

Business: The world's biggest maker of hot cereals, with 60 percent of the market, Quaker Oats is also the fourth-biggest maker of ready-to-eat ceareals. Also makes Gatorade, Aunt Jemima syrup, Rice-A-Roni and Gaines and Cycle pet foods.

1994* Revenue: $5.96 billion

Profit: $231.5 million

SNAPPLE BEVERAGE

Headquarters: East Meadow, N.Y.

Employees: 176

Business: Makes and markets a variety of beverages, including brewed iced tea, fruit juice, natural sodas and seltzers and sport drinks. Snapple drinks are sold at convenience and grocery stores throughout the United States.

1993 Revenue: $516 million

Profit: $67.6 million

* Fiscal year ended June 30.

SOURCES: Bloomberg Business News, Hoover's Handbook of American Business