Sweet deal

PepsiCo: PepsiCo and its bottlers can now clink their cans and seal a deal. The beverage giant has boosted its cash-and-stock offer for the parts of the two bottling companies it doesn’t already own by nearly $2 billion. That may still underestimate the potential synergies, but the bottlers’ shareholders will get the chance to benefit from any upside. It’s not a bad outcome for targets with few other options.

PepsiCo first bid for Pepsi Bottling Group (PBG) and PepsiAmericas (PAS) in late April. Both rejected its overtures, but they didn’t have much negotiating power. Pepsi already owned 33 per cent of PBG and 43 per cent of PAS, making it unlikely the companies would attract any competing offers. Also, they’re closely tied to the beverage maker’s business – together they account for 80 per cent of its US distribution.

PepsiCo has now raised its bids by 24 per cent and 22 per cent respectively and both bottlers’ managements seem keen to do the deal. PepsiCo has also raised its estimate of potential synergies by 50 per cent, to $300 million.

That could still be low. Analysts have pegged potential synergies as high as $600 million. Taxed and capitalised, the additional $300 million of synergies would have been worth another $2 billion or so to the bottlers’ shareholders.

But since they’ll be receiving part of their payoff in stock, PBG and PAS shareholders can still share in some of that upside. And given the bottlers’ lack of negotiating leverage, the deal looks to be as good as they’ll get. Shareholders seem to agree – shares in the bottlers rose to just below the price on the table. PepsiCo, meanwhile, saw its shares rise as much as 5% after the transaction was announced. It looks to be sweet enough for all the parties.