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PepsiCo's takeover offer seen inadequate

By Emily Fredrix | May 6, 2009, Wednesday | Print Edition

PEPSI Bottling Group Inc said on Monday that it has rejected what it called a "grossly inadequate" acquisition offer from PepsiCo Inc, but analysts said that does not mean the deal is over, just that Pepsi needs to offer more money.

The New York-based Pepsi Bottling Group also looked to shield itself from other bids it deems unfavorable, saying it had approved a stockholder rights plan. Such plans, also known as "poison pills," are commonly used to try to hold off hostile takeover attempts.

The US$6-billion proposal for Pepsi Bottling and PepsiAmericas would have let PepsiCo control about 80 percent of its total North American beverage volume.

The company said last month in announcing its offer that buying the bottlers would allow the company to be more nimble, save money and help it navigate an industry that places less focus on soft drinks and more on healthier water and juices by making it easier to get products to stores.

Pepsi Bottling Group, which Pepsi spun off in 1999, said in a letter sent to PepsiCo Chairman and Chief Executive Indra Nooyi that it values its relationship with PepsiCo, but would not agree to a deal that doesn't reflect its "true value." PepsiCo owns about 33 percent of Pepsi Bottling Group and 43 percent of Minneapolis-based PepsiAmericas.

Pepsi Bottling told the maker of drinks like Sierra Mist and Pepsi colas that the offer, made on April 20, "is at virtually no premium to market" given its first-quarter performance and the company's increased forecasts.

It noted that PepsiCo made the offer two days before Pepsi Bottling's first-quarter earnings, when it announced its quarterly profit more than doubled on a favorable tax audit settlement, which led it to boost its earnings forecast for the year. The results easily beat Wall Street's expectations.

Pepsi Bottling also said Pepsi underestimated the savings it could achieve with such a deal.

PepsiCo said it would save at least US$200 million a year before taxes if it were to consolidate its bottlers.



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