PepsiCo today announced that it has entered into definitive merger agreements with the Pepsi Bottling Group (PBG) and PepsiAmericas (PAS ) under which PepsiCo will acquire all of the outstanding shares of common stock it does not already own in its two largest anchor bottlers. This merger is expected to give PepsiCo 80% of the daily management responsibilities of its two largest bottlers.
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.
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.”
PepsiCo cited a variety of positives stemming from this merger, and have listed the majority of them in their press release here:
- 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
BevWire basically has listed the benefits before on a previous post, but the one that seems most attractive listed here is the offering of compelling bundles. For example, PepsiCo preivously would have had to coordinate between PBG, PAS, and Frito-Lay if they were to run promotions for the NFL Super Bowl because each was a separate business unit. Now that they are all under the same company, it will be easier to run these promotions and possibly promotions that are more aggressive in pricing since there are cost savings to be realized. Instead of risking profits lost between negotiations the different business units, they are now all under the same company.
How will Coca-Cola respond? Will they acquire their distributor, Coca-Cola Bottling? Will they go shopping and look to buy another package goods company (ie ConAgra, Kraft, etc)? It all remains to be seen, but in all likelihood Coca-Cola will stand pat and see how things pan out first before launching a response (if necessary).