Under the agreements, PBG shareholders will have the option to elect either $36.50 in cash or 0.6432 shares of PepsiCo common stock (which had a value of $36.50 based on PepsiCo closing share price of $56.75 on July 31, 2009) for each share of PBG , subject to proration such that the aggregate consideration to be paid to PBG shareholders shall be 50 percent cash and 50 percent PepsiCo common stock. Similarly, PAS shareholders will have the option to elect either $28.50 in cash or 0.5022 shares of PepsiCo common stock for each share of PAS (which had a value of $28.50 based on PepsiCo closing share price of $56.75 on July 31, 2009), subject to proration such that the aggregate consideration to be paid to PAS shareholders shall be 50 percent cash and 50 percent PepsiCo common stock.
The total value of the shares that PepsiCo will be acquiring is about $7.8 billion, and the acquisitions will create one of the largest food and beverage companies globally. Based on the recommendations of the Special Committee of PBG and the Transactions Committee of PAS , the boards of directors of PBG and PAS , respectively, have approved the transactions.
This transaction is expected to create annual pre-tax synergies of $300 million by 2012 largely due to greater cost efficiency and also improved revenue opportunities. The acquisitions are expected to be accretive to PepsiCo’s earnings by about 15 cents per share when synergies are fully realized in 2012.
PepsiCo Chairman and Chief Executive Officer Indra Nooyi said “PepsiCo has had a constructive partnership with PBG and PAS over the past 10 years. 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.
“The fully integrated beverage business will enable us to bring innovative products and packages to market faster, streamline our manufacturing and distribution systems and react more quickly to changes in the marketplace, much like we do with our food business,” Nooyi said. “It will also make it easier to leverage ‘Power of One’ opportunities that involve both our beverage and food offerings, and for PepsiCo to present one face to retail customers. Ultimately it will put us in a much better position to compete and to grow both now and in the years ahead.”
“This transaction provides outstanding value for PBG shareholders, offers new and expanded opportunities for PBG employees and positions the combined company to accelerate growth going forward,” said Eric Foss, Chairman and CEO of PBG . ” PBG has a proven track record of success driven by best-in-class execution, consistently exceeding customer expectations and creating superior shareholder value. After a thorough evaluation process, the PBG Board concluded that this transaction represents full and fair value and is the best outcome for PBG shareholders, employees and customers. Ultimately, the transaction positions the entire Pepsi system to continue to win in the marketplace.”
PepsiAmericas Chairman and Chief Executive Officer Robert C. Pohlad said, “Over the past nine years, PepsiAmericas and each of our employees have helped build a remarkable organization. The success we have achieved is reflected in the agreement reached with PepsiCo. This agreement provides great value to our shareholders and an opportunity for them to participate in the unique potential of this combination. Bringing together these three great companies is bold and strategically innovative, and will create a system unmatched in our industry.”
Combination will drive future growth
PepsiCo expects the transaction to directly complement the transformation efforts already underway in its North American beverage business. Those efforts have included refreshing such brands as Pepsi and Gatorade and introducing an array of new products, ranging from the naturally sweetened zero-calorie SoBe Lifewater to low-calorie Trop50. At the same time PepsiCo has taken steps to fundamentally improve its cost structure.
PepsiCo cited a number of specific benefits it expects to realize by consolidating its two largest bottlers:
* 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
The acquisitions are not subject to financing contingencies, but they are subject to c ustomary approvals, including regulatory approvals and approval of the transaction by stockholders of PBG and PAS . The parties expect the transactions to close in late 2009 or early 2010. Debt financing commitments were provided by BofA Merrill Lynch and Citi.
Centerview Partners and BofA Merrill Lynch are acting as lead financial advisors to PepsiCo. Citi is also acting as financial advisor to PepsiCo. Davis Polk & Wardwell LLP is acting as legal counsel to PepsiCo. Morgan Stanley is acting as financial advisor to PBG , Perella Weinberg Partners provided a fairness opinion and Cravath, Swaine & Moore is acting as legal counsel to PBG . Goldman Sachs is acting as financial advisor to PAS , and Sullivan & Cromwell and Briggs and Morgan are acting as legal counsel.
For more information please access our website at: www.transactioninfo.com/pepsico.
PepsiCo will host a webcast on August 4, 2009 at 9:30 a.m. Eastern Time to discuss the transaction. The webcast can be accessed on the investor relations section of PepsiCo’s website, www.pepsico.com .
PepsiCo offers the world’s largest portfolio of billion-dollar food and beverage brands, including 18 different product lines that each generate more than $1 billion in annual retail sales. Our main businesses – Frito-Lay, Quaker, Pepsi-Cola, Tropicana and Gatorade – also make hundreds of other nourishing, tasty foods and drinks that bring joy to our consumers in over 200 countries. With more than $43 billion in 2008 revenues, PepsiCo employs 198,000 people who are united by our unique commitment to sustainable growth, called Performance with Purpose. By dedicating ourselves to offering a broad array of choices for healthy, convenient and fun nourishment, reducing our environmental impact, and fostering a diverse and inclusive workplace culture, PepsiCo balances strong financial returns with giving back to our communities worldwide. For more information, please visit www.pepsico.com
The Pepsi Bottling Group, Inc. (www.pbg.com) is the world’s largest manufacturer, seller and distributor of Pepsi-Cola beverages. With approximately 67,000 employees and annual sales of nearly $14 billion, PBG has operations in the U.S. , Canada , Greece , Mexico , Russia , Spain and Turkey . For more information, please visit www.pbg.com .