In the Spotlight - PepsiCo bottler bid turning ugly?
The deal will see PepsiAmericas' Caribbean business, excluding the Bahamas, combined with Cabcorp's Central American business. Cabcorp will take an 82% stake in the venture.
The joint venture comes after PepsiAmericas joined Pepsi Bottling Group in snubbing a takeover offer from parent group PepsiCo earlier in the month, saying the combined $6bn bid undervalued the group and potential cost savings to be made.
Citigroup said PepsiAmericas has limited leverage to push PepsiCo to increase its unsolicited bid and a number of analysts believe that the soft drinks giant may just cap the deal with Pepsi Bottling Group (PBG), leaving out PepsiAmericas altogether.
PBG, however, is proving just as difficult to catch. PepsiCo turned up the heat and filed a lawsuit against PBG earlier this month, accusing independent board members of illegally setting up measures to block a takeover.
PepsiCo said it believes independent directors on the PBG board have adopted a so-called "poison pill" to protect it from a hostile takeover, but they did not notify any PepsiCo-affiliated board members of their plan or invite them to a meeting.
The move signals that the situation is turning ugly.
However, ConsumerEdge research analyst Bill Pecoriello said he expects the companies to negotiate, "somewhere between what Pepsi offered and what the bottlers think their intrinsic value is".
"The ultimate agreement will probably be somewhere in between those two. We still expect the transaction to get done," Pecoriello said.
PepsiCo ultimately wants to buy back the shares it doesn't already own in the bottlers in a bid to regain control over soft drink sales, as soda volumes fall and non-carbonated drinks grow more popular.
However, a sticking point is the amount of synergies PepsiCo would gain through acquiring the two bottlers.
PepsiCo estimated synergies would total about $200m, while PBG said the benefits would be "multiples" higher than that.
Pecoriello previously estimated that PepsiCo could see $600m to $800m in synergies from the deal.
"It is hardly surprising then that Pepsi and the bottlers have somewhat divergent views on the topic," the Wall Street Journal reported.
Yet, this isn't the first time the parties have discussed how much money could be saved through a combination of the two bottlers.
Reports have said that PGB and PepsiAmericas have discussed the option of merging for the last five years, but there was never any discussion of PepsiCo buying the two bottlers outright.
The Morning Star's Philip Gorham believes there are "more rounds of bargaining to come", but is concerned that if Pepsi values the bottlers at prices significantly above fair value estimates, the firm could "destroy shareholder value".
If PepsiCo really wants to own its two major bottlers, it looks likely that it will have to pay a considerable amount more than the offer already on the table.
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