Consumer Edge Research

Pepsi Bottling Group Rejects PepsiCo Purchase Offer

Duane D. Stanford, Bloomberg
May 04, 2009

Pepsi Bottling Group Inc.’s board rejected as “grossly inadequate” PepsiCo Inc.’s cash-and-stock proposal for a remaining stake in the company, leaving PepsiCo to consider a higher bid. PepsiCo offered about $6 billion for Pepsi Bottling Group and PepsiAmericas Inc., its two biggest bottlers, on April 20, representing a 17 percent premium over the two distributors’ previous closing share prices. PepsiAmericas said today it’s still reviewing the offer. Pepsi Bottling could fetch at least $8.50 more than the equivalent of $29.50 a share PepsiCo offered, according to Bill Pecoriello, an analyst. PepsiCo wants to buy back the shares of the companies it doesn’t already own to regain control over soft-drink sales as soda volumes fall and non-carbonated drinks grow more popular. “We believe these transactions will get done and that the bottlers will meet PepsiCo somewhere in the middle,” Pecoriello, an analyst with Consumer Edge Research in Stamford, Connecticut, said today in a note. He estimates PepsiCo could save $600 million to $800 million annually within three years if it acquires the two companies. Jenny Schiavone and Dave Dececco, spokespeople for PepsiCo, didn’t immediately return e-mails and telephone messages seeking a response. Pepsi Bottling Group fell 20 cents to $31.21 at 11 a.m. in New York Stock Exchange compositetrading. PepsiAmericas rose 10 cents to $24.52. PepsiCo dropped 56 cents to $49.23. “The PBG board will not agree to a proposal which does not reflect the true value of PBG,” Pepsi Bottling Group Chief Executive Officer Eric Foss and Ira D. Hall, a director, said in an open letter to PepsiCo CEO Indra Nooyi. Strong Earnings Pepsi Bottling pointed out in the letter that PepsiCo’s bid came two days before the distributor reported earnings that beat analysts’ estimates and raised its full-year forecast. Two PepsiCo executives, Cynthia Mary Trudell and John Compton, sit on Pepsi Bottling’s board. In its letter to PepsiCo, Pepsi Bottling said the committee determined that savings generated by combining PepsiCo with its two largest bottlers would be “multiples of the $200 million” PepsiCo has estimated. Pepsi Bottling has taken steps to protect itself from acquisition attempts, the Somers, New York-based company said today in a statement. PepsiCo, based in Purchase, New York, offered the equivalent of $23.27 per share for the stock it didn’t already own in Minneapolis-based PepsiAmericas. Pecoriello estimates the company is worth at least $28 a share. PepsiAmericas’ special committee is reviewing PepsiCo’s offer and will ‘take their time to determine the best course of action,” Mary Viola, a company spokeswoman, said today in a telephone interview. The Pepsi Bottling Group board said it acted on the unanimous recommendation of a special committee of independent directors, led by Hall and advised by Morgan Stanley and Cravath, Swaine & Moore.