Pepsi to Buy Bottlers
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In an announcement on Monday from one of the world's largest soft-drink maker
and bottler, PepsiCo Inc. (PEP), stated that the company offered some $6
billion to acquire their two largest bottling companies, which Pepsi had spun
off originally. The offer is an attempt for the company to update and improve
the way it delivers its products.
Purchasing the remaining shares will allow Pepsi to respond more rapidly to
the readily apparent changes in demand. As more consumers move further away
from carbonated drinks, Pepsi would become more efficient in offering their
customers such beverages as juices and water.
The two companies in focus for Pepsi are Pepsi Bottling Group (PBG) and
PepsiAmericas Inc. (PAS). This would give the beverage company nearly 80% of
the beverage volume in North America. Pepsi is currently offering $29.50 per
share for PBG, more than a 17% premium from last Friday's closing price. In
addition, Pepsi is offering $23.27 per share for PAS, also more than 17% over
last Friday's price.
The offer, when broken down further, shows that Pepsi is offering PBG
shareholders $14.75 in cash plus 0.283 shares of PepsiCo for each share owned.
Additionally, Pepsi is offering those in possession of PAS stock, $11.64 in
cash plus 0.223 shares of PEP for every share owned at time of completion.
As it stands today, Pepsi owns roughly 33% of PBG and 43% of PAS.
As mentioned above, some of the contributing factors to the offers for the
bottling companies include, efficiency, demand changes and the fact that
non-alcoholic beverages have seen continual declines in sales over the past
four years. In fact, both Pepsi and Coca-Cola (KO) have struggled to keep up
the ever-changing consumer environment from sodas to non-carbonated drinks.
"In the more mature market of today, there is a need to be more nimble given
the increasing role of non-carbonates, retailer consolidation and the
changing competitive landscape," proclaimed Indra K. Nooyi, PepsiCo's CEO.
Nooyi went on to add, "Non-carbonated drinks, which have different economics
and different distribution systems than carbonated soft drinks, have become a
much bigger factor in the industry and in our own portfolio."
At the start of the week, Pepsi also released their 1st quarter results,
showing a decline in profits as weakening demand continues to weigh on the
bottom-line. For the recent period, Pepsi recorded net income of $1.14B, or
$0.72 per share, in contrast to last year's earnings of $1.15B, or $0.70 per
share.
Pepsi's quarterly revenues came in at $8.26B, down nearly 1% from last year's
tally of $8.33B. Overall sales were affected by the current exchange rate as
the Dollar has strengthened over the past several months, cutting into the
company's net revenues by 6%.
Analysts, in the meantime, were looking for the beverage and snack maker to
post quarterly earnings of $0.67 per share on overall revenues of $8.28B.
PepsiCo currently operates in four very distinct divisions, Frito-Lay North
America, PepsiCo Beverages North America, PepsiCo International and Quaker
Foods North America.
During the recent quarter, the Frito-Lay NA segment posted revenues of $3B,
up nearly 10% over last year's 1Q, while the Quaker Foods NA unit saw sales
more than 2% to $485M. As for the company's Latin American division, sales
came in lower than anticipated, down from $971M the year before to $867M, a
decrease in revenues of nearly 11%. Lastly, the company's quarterly revenues
for international sales were $1.82B, as the European markets contributed
$947M of the total sales.
Looking further down the road, Pepsi reaffirmed their full-year guidance for
both revenues and earnings per share. Although definitive numbers were not
released, company representatives insisted that Pepsi should post mid-to-high
single digit growth within their yearly sales and EPS numbers based on last
year's earnings of $3.68 per share. On average, analysts are looking for
annual earnings from the company to come in at $3.67 per share on total
revenues of $43.74B.
Following the announcement of the possible buyout, shares of PepsiCo have
been steadily falling. Since Friday, PEP shares have slipped more than 5% to
just over $49 per share. Meanwhile, shares of PepsiAmericas (23%) and Pepsi
Bottling Group (20%) have both advanced on news of the pending purchase
agreement.
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