labels: M&A, Soft drinks
Pepsi offers to buy out its two bottlers for about $6 billion news
20 April 2009

The world's second- largest soft-drink maker, Pepsi plans to offer to buy out its two largest independent bottlers for about $6 billion.

Pepsi says it will acquire all the outstanding shares of common stock it does not already own in its two largest anchor bottlers, The Pepsi Bottling Group (PBG ) and PepsiAmericas (PAS), for $29.50 and $23.27 per share respectively m - a premium of 17.1 per cent over the closing price of the common stock of each company on on 17 April.

Pepsi already owns 33.1 per cent of PBG stock and 43 per cent of PAS.

The offers consist of $14.75 in cash plus 0.283 shares of PepsiCo common stock for each share of PBG, and $11.64 in cash plus 0.223 shares of PepsiCo common stock for each share of PAS and the total value of the shares PepsiCo is proposing to acquire is approximately $6 billion.

Pepsi said in a press release, ''The acquisitions would create a leaner, more agile business model and provide a stronger foundation for PepsiCo's future growth. Pepsi would handle distribution of about 80 per cent of its total North American beverage volume, including both its direct-store-delivery and warehouse systems.''

Since the last decade, Pepsi has deliberately kept its distance from the bottling business to concentrate on marketing, sales and bringing out newer products.

Pepsi and Coke do not reveal the contents of their concentrate and syrup but sell them to their bottlers, who then add water along with sweeteners in the required dosages and bottle or can it for further onward sales.

Pepsi said that it believed that by reshaping its business model, the proposed acquisitions will streamline the company's manufacturing and distribution and facilitate rapid decision-making and to optimize revenue, productivity and costs.

PepsiCo chairman and CEO Indra Nooyi said, ''PepsiCo's close working relationships with both bottlers has enabled the current system to function at a high level. We have great respect for The Pepsi Bottling Group and PepsiAmericas, which share our values and are both true operating companies and based on our history of successful acquisitions and our strong operating culture, we have a high degree of confidence that we would deliver a seamless integration."

This current offer is one of the most aggressive moves made by Nooyi, one that would give Pepsi 80 per cent control of it distribution business in North America.

The last such aggressive move made by her was in China in November 2008 to counter Coke's increasing supremacy in the world's second largest beverage market, when Coke announced its intention of acquiring of Beijing-based Chinese juice maker Huiyuan Juice in September for $2.4-billion. (See: Coke pulls-off biggest ever acquisition of Chinese firm with $2.4-billion buy of Huiyuan Juice)

She responded in November by announcing that Pepsi would invest $1 billion in China over a period of four years to expand its manufacturing capability, research and development and sales force in the country. (See: Pepsi to invest $1 billion in China) and said that the investment would create thousands of new jobs in China, adding to the 22,000 already employed by Pepsi and its bottling partners.

PepsiCo has lately been focussing on its non-US markets, which account for 44 per cent.  

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Pepsi offers to buy out its two bottlers for about $6 billion