As Coca-Cola announced it no longer has an interest in acquiring Quaker Oats Co. and the Gatorade sports drink, its archrival PepsiCo said it will be launching a $4 billion share buyback programme.

Commenting on the announcement Roger Enrico, CEO at PepsiCo said: "It is a reflection of the strength of our businesses and our confidence in the consistent growth of Pepsi's already powerful cashflow."

Prompting rumours that just weeks after its initial offer to purchase Quaker Oats Co. was rejected, PepsiCo has decided to re-open discussions with the intention of striking a deal with Quaker.

Analysts believe the bidding war is far from over. Danone, the French food group has also said it is still interested in a possible deal, even though its shares didn't react so kindly to the news - dropping more than 8% immediately, before recovering slightly to 148.7 euros.

A statement issued by Danone said: "Danone group's possible interest is based on the fact that an agreement with Quaker could be consistent with Danone's stated strategy to create shareholder value through developing a world leader in focused, growth-oriented healthy nutrition and beverage businesses."

Other Danone brands include Evian water and its Actimel products so where Quaker's sports drink Gatorade seems less likely to fit in with its current drinks portfolio, its food business will.

Gatorade, which accounts for 60% of Quaker's $4.72 billion in sales, could then give Danone the opportunity to expand its drinks business in the US if that is the direction it has quietly decided to take.
It is possible that Coca-Cola had no real intention of acquiring Quaker, as it has no interest in the food business (it would have automatically inherited the entire Quaker food portfolio). But its real intention may have been to halt any plans that PepsiCo may have had of acquiring the Gatorade brand - which holds more than 80% of the sports drink market in the US.

On Wednesday, Coke's CEO Douglas Daft told staff in an internal letter that the board had decided to focus on its core business plan. "The momentum we have seen over the last few months has made us all the more eager to capitalise on the people and resources already part of the company," he said.

This announcement came only weeks after PepsiCo beat Coke to South Beach Beverages, when it agreed to acquire a 90% share of the company and its SoBe range of vitamin enhanced drinks.

While there has been strong growth in both the bottled water and functional drinks sector, the carbonates market has slowed and shown hardly any growth. By looking at current trends if both Coke and PepsiCo want to continue as strong market leaders, they will have to look seriously at diversifying into non-carbonates.

Cadbury Schweppes also eager to become a strong contender to PepsiCo and Coke in the US soft drinks market recently acquired the Snapple range of drinks from Triarc, and by doing so put Cadbury in a much stronger position to snatch US market shares from PepsiCo and Coke.

PepsiCo would not comment on the latest rumours but reports in the press claim that Skip Carpenter, beverage analyst for CSFB, said the PepsiCo buyback should not rule out a bid for Quaker.

Carpenter said: "My view is that there are two separate dynamics. PepsiCo has a growth formula of achieving 12% earnings growth a year and part of that formula is an ongoing buyback programme."

But the report continued to say that other analysts believe Pepsi would have to put such a programme on hold if it were to account for a large acquisition under pooling of interests rules.