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CNBC Anchor and Reporter
In a move aimed at making itself more nimble in the marketplace, PepsiCo confirmed it agreed to purchase its two largest bottling companies for a combined value of $7.8 billion in stock and cash.
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The deal, which is likely to shake-up the beverage business for some time, will allow PepsiCo to control 80 percent of its North American beverage distribution and allow it to trim its costs at a time when sales have weakened.
The beverage industry has been pressured by slumping consumer demand for carbonated soft drinks and by a consolidating base of retail customers. Consumers also are looking for more variety, and increasingly opting for noncarbonated beverages.
"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," said PepsiCo CEO Indra Nooyi, in a press release confirming the deal, which had been reported earlier by CNBC and CNBC.com.
PepsiCo [PEP
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] said Pepsi Bottling [PBG
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] shareholders will have the option of electing $36.50 a share in cash, or 0.6432 of a Pepsi share, subject to a proration so that PepsiCo will be paying 50 percent cash and 50 percent stock for the bottler.
For PepsiAmericas [PAS
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], shareholders may elect $28.50 a share in cash, or 0.5022 of a Pepsi share, subject to a similar proration of half cash and half stock.
The agreement comes more than three months after Pepsi had initially offered $6 billion for the shares that it didn't already own in the two companies. That bid was rebuffed by the two companies as being inadequate.
The latest offer sweetens the original bid by 25 percent for Pepsi Bottling and by 22.4 percent for PepsiAmericas, and is a 45 percent premium to Pepsi Bottling's stock price prior to the intial announcement of PepsiCo's interest.
According to people familar with the situation, negotiations on this deal began three weeks ago, and principals came to an agreement on Friday on the price and worked out the remaining details over the last few days.
Pepsi expect the deal to close later this year or early next year, subject to regulatory approvals.
The Purchase, N.Y., maker of Pepsi cola and Gatorade sports drink said it expects the acquisitions to create cost savings of $300 million by 2012, citing great cost efficiency and improved revenue opportunities for the savings.
The acquisitions also are expected to add about 15 cents a share to earnings when the cost savings from the deal are fully realized in 2012.
In addition to the cost savings, Nooyi said she expects the acquisitions to make it easier for the company to bring innovative products and packages to the market faster and make the company more responsive to changes in the marketplace.
The company, which also owns Frito-Lay snacks, also argues it will be eaiser to promote both its beverage and snack products to retail customers.
Once the deals are completed, about 80 percent of PepsiCo's North American beverage volume will be consolidated.
During a conference call, Nooyi said that even with the cost of the deal, it is still able to make small "tuck-in" acquisitions and it remains committed to its dividend and its share repurchase program.
-Christina Cheddar Berk contributed to this report.
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