Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success (2)

While specific figures regarding these synergies have not been made public, benchmarking PepsiCo’s success with the acquisition of its bottling partners is not difficult. As the bottling business is naturally less profitable than that of selling syrups, it is natural to expect PepsiCo’s gross margin percentage to head lower post-merger. This reality is taken into account with a reminder that the macroeconomic trend in North America is decreasing carbonated beverage consumption per capita. Further, PepsiCo issued millions of new shares of common stock when it acquired its two largest bottling partners. Despite these factors, which have all negatively impacted the company’s earnings per share (EPS), PepsiCo’s third-quarter 2010 EPS came to $1.19, up 10 cents from the prior year quarter, which was also prior to the M&A activity.[ Alazraki, Melly. "PepsiCo Earnings, Revenue Rise on Bottlers Acquisition." DailyFinance. 7 Oct. 2010. Web. 01 May 2011. http://www.dailyfinance.com/2010/10/07/pepsico-earnings-revenue-rise-on-bottlers-acquisition/ .] This suggests that at least some synergies were recognized right away from the first-quarter 2010 mergers, and it’s those cost reductions which fought the negative headwinds facing PepsiCo. The result is significantly higher EPS. Without specific synergy figures from the company, a bit of deduction suggests that PepsiCo’s CEO Nooyi is telling the truth, and that significant cost savings from the merger are unfolding. This relationship translates to Coca-Cola’s acquisition of CCE, as the transactions almost mirror one another. The likelihood of Coca-Cola realizing significant cost savings, and therefore bottom-line growth, from its acquisition of CCE’s North American operations is a virtual certainty.

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

Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success

Implementation Analysis: Likelihood of Acquisition Success

The Coca-Cola/CCE acquisition came to agreement roughly a year ago, with closure of the deal about two quarters ago. The company has not let on yet about synergies realized from the transaction. Therefore, an analysis of the results from PepsiCo’s M&A deal with Pepsi Bottling Group (PBG) and PepsiAmericas (PAS) may be a solid indicator of what Coca-Cola should expect. PepsiCo’s deal occurred roughly a year earlier, with agreement coming on August 4, 2009, and closure on February 26, 2010 after shareholders of both PBG and PAS completed shareholder elections of the form of consideration most desired.[ "PepsiCo Announces Final Results of Elections Regarding Merger Consideration for Bottler Acquisitions." PepsiCo. 2 Mar. 2010. Web. 01 May 2011. http://www.pepsico.com/PressRelease/PepsiCo-Announces-Final-Results-of-Elections-Regarding-Merger-Consideration-for-03022010.html .] As it turned out, all PBG and PAS shareholders who elected to receive cash in lieu of any consideration of PepsiCo stock had their desire met. The rest of PBG and PAS shareholders received roughly 50% of the value of their shares in cash and the other 50% in shares of PepsiCo stock.

According to a publication called “Daily Finance,” an interpretation of PepsiCo’s third-quarter 2010 financial results reads as follows: “The American beverage business saw volume, net revenue and operating profit results driven by the favorable impact of the bottling acquisitions, synergies and improving sequential organic volume trends across the product portfolio in North America.”[ Alazraki, Melly. "PepsiCo Earnings, Revenue Rise on Bottlers Acquisition." DailyFinance. 7 Oct. 2010. Web. 01 May 2011. http://www.dailyfinance.com/2010/10/07/pepsico-earnings-revenue-rise-on-bottlers-acquisition/ .] This assessment was made more firm when Indra Nooyi, PepsiCo CEO, said during the company’s first-quarter 2011 earnings call, “We hit the first anniversary of the bottler acquisitions in the first-quarter, and the synergies are ahead of original estimates. We have made the operational organization changes necessary to realize the cost synergies, and we're beginning to realize the revenue synergies now.”[ "PepsiCo's CEO Discusses Q1 2011 Results - Earnings Call Transcript." Seeking Alpha. 28 Apr. 2011. Web. 01 May 2011. http://seekingalpha.com/article/266334-pepsico-s-ceo-discusses-q1-2011-results-earnings-call-transcript .] From these short-term assessments, it appears that Coca-Cola should expect exceptional cost synergies to emerge, especially around or after the one-year anniversary of the deal completion.

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