Suddenly All Is Well In Bottling Mergers (PEP, PBG, PAS, COKE, CCE, KOF, CCH, KO)

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This morning we caught the news on a volume alert, but there was no confirmation of the news.  Now, we have the formal release from PepsiCo (NYSE: PEP).  Pepsi has capitulated and decided to offer more for its acquisitions of The Pepsi Bottling Group, Inc. (NYSE: PBG) and PepsiAmericas, Inc. (NYSE: PAS).  Both bottlers agreed and signed definitive merger pacts with PepsiCo.

Interestingly enough, this could have traders (and investment bankers) looking toward Coca-Cola Bottling Co. Consolidated (NASDAQ: COKE), Coca-Cola Enterprises Inc. (NYSE: CCE), Coca-Cola FEMSA S.A.B de CV (NYSE: KOF), and Coca-Cola Hellenic Bottling Company S.A. (NYSE: CCH)… all of which are tied to The Coca-Cola Company (NYSE: KO).

Under the agreements, Pepsi Bottling Group, Inc. (PBG) holders will have the option to receive either $36.50 in cash or 0.6432 shares of PepsiCo common stock.  That value was $36.50 based on PepsiCo’s closing share price of $56.75 on July 31, 2009.  That is subject to proration such that the aggregate consideration to be paid to PBG shareholders shall be 50% cash and 50% PepsiCo common stock.

In a similar deal, PepsiAmericas (PAS) shareholders will have the option to receive either $28.50 in cash or 0.5022 shares of PepsiCo common stock.  That had a value of $28.50 based on PepsiCo closing share price of $56.75 on July 31, 2009.  It is also subject to proration such that the aggregate consideration to be paid to PAS shareholders shall be 50% cash and 50% PepsiCo common stock.

This is not a small deal at all, particularly considering that these mergers are for the stakes not already owned.  The total value of the shares that PepsiCo is acquiring comes to roughly $7.8 billion.  Based on the recommendations of the Special Committee of PBG and the Transactions Committee of PAS, the boards of directors of both companies have approved the merger transactions.

Pepsi gave the end game numbers here.  It sees annual pre-tax synergies of $300 million by 2012 and expects these mergers to be accretive to PepsiCo’s earnings by about $0.15 on earnings per share when synergies are fully realized in 2012.

We have yet to see much action in the rival play here in an investor Pepsi vs. Coke taste challenge.  Coca-Cola Bottling Co. Consolidated (NASDAQ: COKE), Coca-Cola Enterprises Inc. (NYSE: CCE), Coca-Cola FEMSA S.A.B de CV (NYSE: KOF), and Coca-Cola Hellenic Bottling Company S.A. (NYSE: CCH) are all tied to The Coca-Cola Company (NYSE: KO).  Our sources have noted that there is not the same appetite to make this sort of transaction that Pepsi has embarked upon, although that was back in April and May and anything could have changed by then.

JON C. OGG
AUGUST 4, 2009