Pepsico Bottlers: Rewarded for Holding Out

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 |  Includes: PAS, PBG, PEP
by: Brendan Wagner

It's refreshing to see management not only protecting, but diligently increasing shareholder value - even while being criticized for taking too long to do so.

Today Pepsico (NYSE:PEP) relented and upped the offer price for buying the shares it doesn't already own of its bottlers Pepsi Bottling Group (PBG) and Pepsi Americas (PAS). The two bottlers' stocks are up 8% today, and Pepsico shares are up also, likely because the deals are at a favorable price:

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The deal has been rocky because the bottlers' managements have fought in public to explain that the synergies (fancy word for deal-related cost savings) involved would be in the $750-850million range, while PepsiCo argued the savings would be closer to $200million, so they could justify a lower purchase price. That was then this is now, as PepsiCo announced that they think synergies would be $300m.

PepsiCo argued against the bottlers' numbers back in early June:

After careful review and analysis, PepsiCo remains convinced that there are annual synergies of at least $200 million through the consolidation of the two anchor bottlers and PepsiCo. PepsiCo believes there is no justification for the estimates that PBG released today of purported annual synergies of $750 million to $850 million. By way of comparison, PBG previously communicated to PepsiCo that a combination of PBG and PepsiAmericas (NYSE: PAS - News) would generate synergies well below $100 million.

PepsiCo has offered a full and fair price for the shares of PBG it does not currently own. Despite PBG's stock price rising 45% in the 30 trading days prior to PepsiCo's offer, PepsiCo offered an additional 17% premium to PBG's shareholders. The offer price was a 69% premium to PBG's stock price as of 30 trading days prior to the offer, which is well in excess of average premiums for comparable transactions.

Today's details, from PepsiCo's website:

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I wouldn't be surprised to see the bottlers' estimates ($750million range) turn out to be closer to the truth, which would also please Pepsi shareholders as management "beats" their original cost saving targets. Love all around!

The fruits of the bottlers' management efforts:
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Disclosure: no positions