PepsiCo offers to buy bottlers in $6bn deal

From The Times
April 21, 2009

PepsiCo offers to buy bottlers in $6bn deal

Christine Seib in New York

PepsiCo has launched a $6 billion takeover of its largest bottlers to cut costs as cash-strapped and increasingly health-conscious Americans turn away from fizzy drinks in favour of water and juice.

The maker of Pepsi cola offered $29.50 a share in cash and shares for the two thirds of Pepsi Bottling Group (PBG) that it does not already own. PBG is the biggest independent bottler of Pepsi products. At the same time, Pepsi offered $23.27 a share for 57 per cent of PepsiAmericas (PAS). The price represents a 17.1 per cent premium to both companies’ closing prices on Friday. Shares in Pepsi were down almost 5 per cent at $49.86 at the close yesterday, despite beating expectations with a $1.14 billion net income for the first quarter.

The bottling companies said that they would evaluate Pepsi’s offers, which are worth about $6 billion (£4 billion) combined. Pepsi calculates that buying the bottlers will save it about $200 million a year, an important consideration as consumers in North America increasingly turn away from soft drinks.

According to research by Beverage Digest, sales of soft drinks were down 3 per cent last year, their fourth consecutive annual fall, and the nonalcoholic drinks industry as a whole suffered its first decline in decades.


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The bottling companies make, distribute and sell Pepsi’s soft drinks – the main company owns the rights and markets the brands. The bottlers do not, however, for the large part handle Pepsi’s other drink brands, which include Tropicana juices and Gatorade.

The bottlers are also less well-equipped to manufacture so-called enhanced water, the flavoured and vitamin-added water products that are popular at the moment. Indra Nooyi, Pepsi’s chief executive, complained last year that dealing with large bottling companies, which PepsiCo spun off in 1999, made it difficult to react quickly to market innovations. She said that buying the bottlers would give Pepsi control of 80 per cent of its North American distribution, making it easier to test new concepts.

Ms Nooyi described the offers as a fundamental reshaping of Pepsi’s business model. PBG employs 67,000 people and PAS 20,000. Neither has operations in the UK. Worldwide, PepsiCo has 198,000 employees and says that its products can be found in nearly 200 countries.

http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article6135405.ece