Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor) (2)

Exhibit 4: Quick View of Two PepsiCo M&A Deals

Undoubtedly the most pertinent transaction of PepsiCo’s M&A activity is the company’s merger with its two largest bottling partners in late 2009, early 2010. PepsiCo’s consideration for both companies was targeted for 50% cash and 50% PepsiCo common stock. Expected pre-tax synergies of $300 million were expected to be realized by 2012.[ "PepsiCo Reaches Merger Agreements with Pepsi Bottling Group and PepsiAmericas." PepsiCo. 4 Aug. 2009. Web. 01 May 2011. http://www.pepsico.com/PressRelease/PepsiCo-Reaches-Merger-Agreements-with-Pepsi-Bottling-Group-and-PepsiAmericas08042009.html .] Total PepsiCo consideration for both companies was valued at $7.8 billion. PepsiCo CEO Nooyi, in selling the proposed acquisition to stakeholders, summarized the industry condition well:

“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.”[ Ibid.]

The selling point of this deal to regulators was the apparent quick, seamless integration of the businesses resulting from PepsiCo’s industry expertise. The estimated synergies are expected to help keep costs low to consumers. To shareholders, the company claims this M&A deal will accelerate company growth going forward. What this deal gets reduced to is the simple realization that with no more licensing with bottling partners, there will be no more reduced royalties coming in. The realized synergies will simply boost cash flow by cutting out a middleman. This extra cash flow will let PepsiCo invest in other companies and products, and effectively accelerate the growth of the firm. Exhibit 5 presents a summary of the two bottling companies.[ Ibid. ] Specific benefits PepsiCo says the merger of a bottling company and its bottling partners creates include:

“Consolidation of 80 percent of the North American beverage volume will speed the decision-making process and eliminate friction points
Offering more compelling bundles across food and beverage and providing enhanced customer service nationally, taking the "Power of One" to the next level
Consolidation of manufacturing networks will provide cost benefits and also optimize our investments in growth and innovation
Greater flexibility in deploying multiple go-to-market systems to tailor distribution by channel
Elimination of redundant costs to leverage scale efficiencies”[ Ibid.]

The 80% figure is specific to PepsiCo’s bottlers, but not far off from Coke’s 90%-plus figure. When PepsiCo acquires these companies, the same way Coke purchases CCE as will later become apparent, the financial consideration is entirely cash and stock. As such, no financing contingencies exist that might prevent the deal from coming to fruition. On the contrary, the deal will require regulatory approval as well as a signoff by both bottling companies’ shareholders.

Federal Trade Commission (FTC) regulators came back to Pepsi with conditions identical to what Coca-Cola ultimately agreed to abide by in its acquisition of CCE. PBG and PAS both bottling products for Dr. Pepper Snapple Group, a smaller competitor to both Coke and PepsiCo. The FTC complaint reads: “The FTC’s proposed consent order is designed to remedy these potential problems by requiring PepsiCo to set up a “firewall” so that the sensitive information cannot be accessed by anyone at PepsiCo who may be in an position to use the information against Dr Pepper Snapple.”[ "FTC Puts Conditions on PepsiCo's $7.8 Billion Acquisition of Two Largest Bottlers and Distributors." Federal Trade Commission. 26 Feb. 2010. Web. 01 May 2011. http://www.ftc.gov/opa/2010/02/pepsi.shtm .] Compliant with these terms, PepsiCo closed its acquisitions in February 2010.

More posts from a paper on Coca-Cola M&A Activity (including merger with CCE):

Coca-Cola M&A Activity, CCE Acquisition: Executive Summary
Coca-Cola M&A Activity: Introduction
Coca-Cola M&A Activity: Product Trends
Coca-Cola M&A Activity: Demand and Economic Trends
Coca-Cola M&A Activity: Business Model Trends in the Beverage Industry
Coca-Cola M&A Activity: Beverage Industry Business Model Trends (2)
Coca-Cola M&A Activity: Company Strategic Objectives
Coca-Cola M&A Activity: Company Strategic Objectives (2)
Coca-Cola M&A Activity: Company Portfolio Analysis
Coca-Cola M&A Activity: Company Portfolio Analysis (2)
Coca-Cola M&A Activity: Company Portfolio Analysis (3)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor) (2)
Coca-Cola M&A Activity: Other Beverage Industry M&A Activity
Coca-Cola Acquisition of CCE North America: Deal Structure
Coca-Cola Acquisition of CCE North America: Deal Structure (2)
Coca-Cola Acquisition of CCE North America: Major Legal and Financial Players
Coca-Cola Acquisition of CCE North America: Regulatory and Shareholder Approval of the Transaction
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success (2)
Coca-Cola Acquisition of CCE North America: Conclusion to M&A Deal Analysis
Coca-Cola CCE Merger: Table of Contents and Works Cited List