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Bottlers Reject PepsiCo's Acquisition Proposal; PepsiCo Files Suit

Posted On: 5/13/2009

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Pepsi Bottling Group, PepsiAmericas, PepsiCo, Vending, Vending Machine, Vending Routes, Vending Business

SOMERS, NY -- The Pepsi Bottling Group, based here, and PepsiAmericas (Minneapolis) have both rejected PepsiCo Inc.'s $6 billion offer to acquire all of the outstanding shares of common stock it does not already own in the bottling companies. The combined deal would have put PepsiCo in control of distribution of about 80% of its total North American beverage volume. PepsiCo announced that it is suing PBG to invalidate actions the bottler's board took in reaction to its proposal.

Pepsi Bottling called the offer made by PepsiCo on April 20 "grossly inadequate." The bottler accused PepsiCo of timing its offer to take advantage of its low stock price ahead of April 22 earnings that beat Wall Street estimates, prompting it to raise its full-year guidance. Pepsi Bottling also said PepsiCo's offer did not take into account its plans to cut $250 million in costs over the course of the year. Additionally, Pepsi Bottling charged that PepsiCo understated the value of the cost savings and synergies it would achieve through the acquisition, which the bottler believes would amount to "multiples" of the $200 million PepsiCo estimated.

Pepsi Bottling is the world's largest manufacturer, seller and distributor of Pepsi-Cola beverages. With approximately 67,000 employees and annual sales of nearly $14 billion, it has operations in the U.S., Canada, Greece, Mexico, Russia, Spain and Turkey.

Separately, PepsiAmerica, the second-largest Pepsi bottler, announced that its board of directors has unanimously determined that PepsiCo's offer is neither acceptable nor in the best interest of the company's shareholders. Officials said the proposal does not reflect the value of PepsiAmericas' strengths and standalone strategies, as evidenced by its strong first-quarter results. The bottler also charged that PepsiCo substantially undervalued the synergies that could be obtained in the proposed transaction.

With annual sales of $4.9 billion in 2008, PepsiAmericas employs more than 20,000 people and operates 33 manufacturing facilities and over 175 distribution centers across its markets. It serves a population of more than 200 million in a significant portion of a 19-state region in the U.S.; Central and Eastern Europe; and the Caribbean.

In response to the bottlers' rejections, PepsiCo said it made "full and fair offers" for both companies. According to PepsiCo, its proposal represented a premium of 17.1% over the closing price of the common stock of the bottlers on April 17, and compared with the 30-day average closing prices, the offer prices represented a premium of 36% for Pepsi Bottling and 33.4% for Pepsi Americas.

PepsiCo filed a lawsuit against takeover target Pepsi Bottling Group, claiming that the bottler and some of its directors intentionally held a board meeting without including all board members. The soft drink giant alleged on May 11 that Pepsi Bottling directors affiliated with PepsiCo weren't given notice of the board meeting. The suit seeks declaratory and injunctive relief.

At that meeting, according to PepsiCo, the directors in attendance claim to have adopted a "poison pill" (a method to avoid a takeover bid), implemented certain new executive compensation arrangements and purported to amend the PBG bylaws in ways PepsiCo believes are detrimental to its rights as a shareholder.

"Because of the lack of notice and consideration by the full board, PepsiCo alleges those actions by the board at the meeting are invalid," PepsiCo said in a statement, adding that that PBG and its board breached their fiduciary duties to PBG shareholders by adopting the poison pill because it restricts PepsiCo's rights as a PBG shareholder and constitutes an unreasonable and disproportionate response to PepsiCo's proposal.