PepsiCo shocks market with offer to buy their own bottlers
PepsiCo has proposed to acquire all of the outstanding shares of common stock it does not already own in its two largest anchor bottlers, The Pepsi Bottling Group and PepsiAmericas, in a move that has surprised analysts.
The offer, which represents a premium of 17.1 per cent over the closing price of each company on April 17, has been made to provide the world’s second largest non-alcoholic beverage group with greater control over distribution and to cut costs.
The total value of the deals would be approximately US$6 billion (A$8.57b).
Upon acquiring the outstanding shares of the two bottlers, PepsiCo would handle distribution of about 80 per cent of its total North American beverage volume, including both its direct-store-delivery and warehouse systems.
If completed, the acquisitions “would create a leaner, more agile business model and provide a stronger foundation for PepsiCo’s future growth,” the company suggested.
“Our operating environment has evolved dramatically in the last decade,” PepsiCo Chairman and Chief Executive Officer Indra Nooyi advised. “Retailers have continued to consolidate. New competitors have emerged. And 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. We believe that by reshaping our business model we can significantly improve our competitiveness and our growth prospects.”
Analysts have suggested that the move would make the company more flexible to changing market conditions by enabling decisions to be made without the need to consult bottlers.
“Consolidating the bottling businesses with our franchise company would create many benefits,” Ms Nooyi added. “We could unlock significant cost synergies, improve the speed of decision making and increase our strategic flexibility. We would be able to present a more unified face to our retail and food service customers, which would better position us to provide customized solutions, as we do at Frito-Lay, and to take to a new level our ‘Power of One’ program of bundled food and beverage offerings.”
Pepsi’s plan to consolidate its bottling system is in stark contrast to their earlier strategy and that of the entire drinks sector.
“Strategically, this represents a major about-face for PepsiCo and the entire beverage industry,” JPMorgan analyst John Faucher said, according to Reuters, with the offer coming as “a shock”.
The consolidation would create annual pre-tax synergies estimated to be more than US$200 million, the soft drinks firm added, while reducing the time lag between idea and execution.
PepsiCo’s move could spark a similar decision by The Coca-Cola Company, who has at times had a strained relationship with their bottlers, particularly if it results in PepsiCo can execute the plan effectively.
Ms Nooyi added that the decision was not made due to a fractured relationship with bottlers and expected a “seamless integration” should the deal go ahead.
PepsiCo also announced their sales figures for the first quarter overnight, with six per cent net revenue growth on a constant currency basis. The result was dragged down by their US beverage division but their Africa/Middle Eat and Asia division continued to show resilience as did their American snacks division – led by Frito Lay.
“I am pleased with PepsiCo’s overall performance in the quarter. Our portfolio breadth, geographic reach and operating agility enabled us to deliver strong performance in a challenging global macroeconomic environment,” Ms Nooyi stated. “Worldwide, our teams adapted their operating models – from refreshing our beverage lineup, to devising new value initiatives, to enhancing revenue management and expanding Power of One initiatives.”
Academics in the US have published a new study reporting a growing body of research connecting birth...
Walmart has topped the 2016 Forbes Fortune 500 list.
Loosening your belt in preparation for a big meal out might be a common occurrence, but a new set of...
Increasing demand for premium food, an influx of western restaurants and the rapid expansion of the ...
A study has found those with the ‘obesity gene’ can lose weight through diet, exercise and medicatio...
American parent company of Arnott’s, Campbell Soup Company, has reported better than expected result...
Research is underway to help Australian farmers better understand Chinese customers’ needs for sorgh...
Now in its 20th year, Agri-Tech Israel 2018 focused on agriculture in arid and semi-arid regions, pr...