* Offers $29.50/share for Pepsi Bottling Group
* Offers $23.27/share for PepsiAmericas
* Both bids are 17.1 pct premium; much lower than average
* Bottler shares surge past asking price; Pepsi down 4 pct
* Credit Suisse says offer could rise as much as 10 pct
(Adds data, analyst comment on premium; changes bullet
By Martinne Geller and Jennifer Robin Raj
NEW YORK/BANGALORE, April 20 PepsiCo Inc
offered $6 billion to buy the remaining stakes in its two
largest bottlers, Pepsi Bottling Group and PepsiAmericas, as it
seeks to secure more control of its distribution and cut
The U.S. soft-drink maker's plan to consolidate its
bottling system is a major departure from its earlier strategy
and highlights changes such as the consolidation of retailers
and the growth of noncarbonated drinks, which are made
differently than carbonated sodas.
"Strategically, this represents a major about-face for
PepsiCo and the entire beverage industry," JPMorgan analyst
John Faucher said, adding the offer was "truly a shock."
The cash-and-stock deal would give PepsiCo direct control
of 80 percent of its North America beverage distribution
volume, which could be a competitive advantage in some markets
against archrival Coca-Cola Co (KO.N), said John Sicher, editor
and publisher of industry publication Beverage Digest.
"It's about speed, agility and control," Sicher said. Pepsi
would be able to make selling decisions about its drinks
without having to discuss them with the bottlers, he said.
PepsiCo also reported a quarterly profit that topped Wall
Street estimates, helped by better-than-anticipated trends in
its Frito-Lay snack business and overseas.
The company's shares closed down $2.27, or 4.35 percent, at
$49.86 on the New York Stock Exchange on Monday afternoon.
PREMIUM OF MORE THAN 17 PERCENT
PepsiCo (PEP.N) said on Monday it offered $29.50 per share
in cash and stock for Pepsi Bottling Group PBG.N and $23.27
per share for PepsiAmericas PAS.N, representing a 17.1
percent premium to both companies' closing stock prices on
Friday. The deal values Pepsi Bottling at $6.49 billion and
PepsiAmericas at $2.96 billion.
Yet the average premium on so-called "squeeze-out" deals --
where a shareholder in a company buys the other stockholders
out -- is 35.8 percent, according to merger research firm
UBS analyst Kaumil Gajrawala said the takeout premiums were
small compared to the benefits outlined by the company.
"Thus, we think that many of the long-term benefits to
Pepsi Bottling/PepsiAmericas shareholders will only come from
the (new) ownership of Pepsi shares," Gajrawala said.
Credit Suisse analyst Carlos Laboy said he expects the
bottlers to ask for, and receive, as much as 10 percent more
than the current bids.
In an interview, PepsiCo Chief Financial Officer Richard
Goodman called the current offers "fair" and declined to say if
the company would raise them.
But in a sign investors see room for higher offers, both
bottlers' shares soared past the bid prices, with Pepsi
Bottling closing up 22 percent at $30.73 and PepsiAmericas up
26 percent at $25.04.
Shares of Coke's largest bottler, Coca-Cola Enterprises Inc
CCE.N, ended the day up 2.6 percent at $15.27 after rising as
much as 7.6 percent as Pepsi's move resurrected speculation
that Coke may move to buy its bottler [ID:nN20475061].
Pepsi said it would move forward only if both bottlers
accept. It also said it would not consider selling its existing
stakes in the bottlers, erasing any opportunity for another
suitor to step in. PepsiCo already owns 33 percent of Pepsi
Bottling and 43 percent of PepsiAmericas, according to recent
Even though PepsiCo said it does not expect any problems
from antitrust regulators, Laboy said concerns should not be
dismissed outright since the bottlers also sell drinks from
Pepsi's offers consist of $14.75 in cash plus 0.283 shares
of PepsiCo common stock for each share of Pepsi Bottling, and
$11.64 in cash plus 0.223 shares of PepsiCo for each share of
"It has become very clear to us that we need to reshape our
North American business in a fundamentally different way,"
PepsiCo Chief Executive Indra Nooyi said during a conference
"In the more mature market of today," she said, "there is a
need to be more nimble given the increasing role of
(noncarbonated beverages), retailer consolidation, and the
changing competitive landscape."
PepsiCo said the deal would lead to more than $200 million
in annual pretax savings and add to its earnings by at least 15
cents a share once the savings are fully realized.
Goodman sees more than half of the savings occurring within
the first 18 months of the deal closing, with the balance
shortly after that.
Faucher, who has an "overweight" rating on PepsiCo and
rates the bottlers both "neutral," said about $200 million in
synergies seemed "way too low."
Pepsi Bottling said it would evaluate PepsiCo's proposal.
The bottler, which was spun off from PepsiCo in 1999, accounts
for more than half of the company's drinks sold in North
America and about 40 percent sold worldwide.
PepsiAmericas, which bottles and sells about 19 percent of
PepsiCo beverage volume, advised shareholders to take no action
pending review of the proposal by its board.
RESULTS BEAT STREET
PepsiCo also reported better-than-expected quarterly
results and affirmed its outlook for the year on Monday, a day
before Coke is expected to report quarterly results.
PepsiCo's forecast, which calls for net revenue and core
earnings per share to rise in a mid- to high-single-digit
percentage range on a constant currency basis, did not include
the impact of the proposed bids for the bottlers.
Net income fell to $1.14 billion, or 72 cents per share, in
the first quarter ended on March 21 from $1.15 billion, or 70
cents a share, a year earlier, when there were more shares
outstanding. Excluding items, earnings were 71 cents per share,
which topped analysts' average forecast of 67 cents, according
to Reuters Estimates.
Net revenue fell 1 percent to $8.26 billion, as sales by
volume also fell 1 percent.
PepsiCo's financial advisers for the deal were Centerview
Partners, Banc of America Securities and Merrill Lynch.
(Additional reporting by David Jones in London and Megan
Davies in New York; Editing by Matthew Lewis and Andre Grenon)