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COMMENT: PepsiCo to raise its offer?

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PepsiCo is standing firm against its bottlers' demands, but it looks increasingly likely that the soft drinks giant will have to raise its offer if it does not want the deal to go flat.

Pepsi Bottling Group turned the screws on its parent group this week by holding a conference call to outline exactly why it feels PepsiCo's combined $6bn offer for both it and fellow bottler PepsiAmericas is "grossly inadequate".

PepsiCo retaliated with an assurance that it will "maintain a disciplined approach".     

PepsiCo's problem is that it looks to have been outmanoeuvred by its bottlers. Both PBG and PepsiAmericas ended yesterday at around $33 and $26 per share, higher than PepsiCo's offer of $29.5 and $23 per share for the bottlers' remaining shares respectively.

In the last month, PBG has announced two takeover deals for provincial drinks bottlers in the US, Better Beverages and Pepsi-Cola Bottlers for the Merrimack Valley. On Tuesday, it raised its earnings guidance for both its second quarter and full-year. It also published guidance showing that annual synergies from a deal could be up to four times higher than PepsiCo's predicted $200m.

Some initially took PepsiCo's rebuttal of PBG's claims this week as a hint that the group may walk out on a deal.

However, PepsiCo's message serves more as a warning to the bottlers that it will not be railroaded into paying an exorbitant amount of money. The group reiterated that it still desires to take full control of its bottling operations, but will not do so at a cost it sees as astronomical.

PBG is right in asserting that the ball sits "in PepsiCo's court" and we expect that PepsiCo will increase its offer.


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