Pepsi drinks up two bottling deals

Posted Aug 4th 2009 12:20PM by Tom Taulli
Filed under: Competitive Strategy, PepsiCo (PEP)

After some wrangling, PepsiCo (NYSE: PEP) has agreed to pull the trigger on the acquisitions of Pepsi Bottling Group (NYSE: PBG) and PepsiAmericas (NYSE: PAS). In all, the deals come to roughly $7.8 billion (half in stock and half in cash).

On the news of these transactions, the share prices of both Pepsi Bottling Group and PepsiAmericas have spiked 7%. Keep in mind that -- back in April -- Pepsi made a play for these companies, but at a total price tag of $6 billion or so.

The rationale for these deals? Well, it's about scale and integration. Pepsi should get products to market faster, as well as improve the distribution system and manufacturing. For example, there should be more leverage, especially with large customers like Walmart (NYSE: WMT).

In fact, by 2012, the transactions should result in annual cost savings of $300 million. In a mature industry like beverages, this is certainly a big deal. Interestingly enough, these cost estimates are probably conservative.

So far in today's trading, Pepsi's shares are up 3.68% to $58.27.

Tom Taulli is the author of various books, including The IPO Primer and The Complete M&A Handbook. He is also the co-founder of Phitch, which provides inventory management software for small and medium size businesses.

Tags: inthenews, MA, PEP, Pepsi Bottling, PepsiAmericas, PepsiCo, Walmart, WMT