PepsiCo is back in the bottling business after hiking its original acquisition offer by $1.8 billion for two of its bottlers to $7.8 billion to create one of the world's largest food and beverage company.
Indra Nooyi, chief executive officer, announced yesterday that Pepsi has agreed to buy two of its biggest bottlers, Pepsi Bottling Group and PepsiAmericas in deals worth a total of $7.8 billion.
New York-based PepsiCo will pay Pepsi Bottling Group (PBG), the biggest independent bottler of Pepsi products, $36.50 a share, up from its earlier offer of $29.50 per share and pay PepsiAmericas (PAS) $28.50 a share, up from $23.27 per share. Pepsi already owns 33.1 per cent of PBG stock and 43 per cent of PAS.
In April, the world's second largest soft-drink maker had made an offer to acquire all the outstanding shares of common stock it does not already own in PGB and PAS for about $6 billion. (See: Pepsi offers to buy out its two bottlers for about $6 billion)
The offer had valued PBS for $4.2-billion and PAS for about $2.8 billion.
With annual sales turnover of nearly $14 billion, the PBG board, in a move widely interpreted as posturing to get a better deal for its shareholders, rejected Pepsi's $4.2-billion cash-and-stock takeover proposal in May, citing the bid was 'grossly inadequate since Pepsi's proposal was made just prior to the public release of PBG's strong first quarter 2009 earnings released on 22 April. (See: Pepsi Bottling Group says Pepsi's $4.2 billion takeover proposal has no fizz)
In a bid to thwart any hostile takeover from Pepsi, PBG then swallowed the 'Poison Pill', which made Pepsi sue PGB in a Delaware Court since Pepsi's nominee directors on PGB's board were not informed about the board meeting. Pepsi by virtue of its 33.1-per cent stockholding has two directors on the board of PGB. (See: Pepsi sues PBG over poison-pill tactics)
Since the last decade, Pepsi has deliberately kept its distance from the bottling business to concentrate on marketing, sales and bringing out newer products.
Nooyi said yesterday, ''PepsiCo has had a constructive partnership with PBG and PAS over the past 10 years. While the existing model has served the system very well, it is clear that the changing dynamics of the North American liquid refreshment beverage business demand that we create a more flexible, efficient and competitive system that can drive growth across the full range of PepsiCo beverage brands.''
''Our shared culture, strong operational leadership and ability to successfully integrate operations – in this case operations we know very well – should allow us to bring the businesses together quickly and seamlessly, she added.
Pepsi said that the acquisition is expected to create annual pre-tax synergies of $300 million by 2012 largely due to greater cost efficiency and also improved revenue opportunities. The cost saving is up by $100 million from the original offer made by Pepsi in April.
The fully integrated beverage business will enable Pepsi to bring innovative products and packages to market faster, streamline its manufacturing and distribution systems and react more quickly to changes in the marketplace since it will now directly control 80 per cent of the North America distribution business.