Zuanic sees PepsiCo as a better strategic fit than Mondelez International (NASDAQ:MDLZ) and cheaper than a Coca-Cola (NYSE:KO) acquisition. He envisions BUD and KHC splitting PEP to make the deal easier to digest.
Rationale: "We argue that, together, the Kendall Jenner commercial, the Aspartame to-be-or-not-to-be zigzagging, the new, new, new alt low-cal cola (Pepsi Zero sugar), the ongoing underperformance in U.S. CSDs (25% “only” of the company), the lack of scale in non-CSD NARTDs vs. KO (other than Gatorade), and now talk of PEP buying Brazilian dairy company Vigor S.A. (a JBS subsidiary that would better fit KHC or ULVR), all paint a picture of a company still struggling to set a new direction (with all due respect). In this regard, we think PEP may be more vulnerable than MDLZ to a KHC bid (jointly done with BUD)."
Number-crunching: "A deal funded 35% with equity and 65% cash would result in a manageable (for BUD) 5.5x net-debt-to-EBITDA multiple, and the share count would increase by 11%; the controlling shareholders would need to fund about $13Bn not to be diluted (of the $25Bn capital increase), which we think is doable for them."
Susquehanna lifts its rating on Pepsico to Positive and boosts its price target to $132.
PEP +0.60% premarket to $112.40.
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