PepsiCo buys its bottlers for $6 billion

PepsiCo Inc., the worldÔÇÖs second- largest soft-drink maker, offered about $6 billion in cash and stock to buy out other shareholders of its two biggest bottlers to take greater control over product sales in North America. In 1999, PepsiCo followed Coca-ColaÔÇÖs lead by spinning off its capital-intensive bottling operations. PepsiCo and bigger rival Coca-Cola Co. sell beverage concentrate and syrup to licensed bottlers who add water and other ingredients, put the mixture in bottles and cans, and sell it.  The move created ÔÇ£a more nimble bottler that could compete with the decentralized Coca-Cola system,ÔÇØ John Faucher, an analyst with J.P. Morgan Securities Inc. in New York, said today in a note. Now PepsiCo wants those operations back.  ÔÇ£We believe that by reshaping our business model we can significantly improve our competitiveness and growth prospects,ÔÇØ PepsiCo Chief Executive Officer Indra Nooyi said in a statement. The companyÔÇÖs ÔÇ£operating environment has evolved dramatically in the last decade,ÔÇØ she said.  PepsiCo currently only has minority stakes in both of its bottling firms, owning 33 percent of Pepsi Bottling Group, and 43 percent of Pepsi Americas. It said it was offering $29.50 per share in Pepsi Bottling Group, and $23.27 per share in Pepsi Americas. ┬á If the deal is backed by shareholders at the two bottling firms, New York-based PepsiCo said it would boost its annual earnings by at least 15 percent.  The transactions will give the maker of Pepsi, Gatorade and Tropicana full control over about 80 percent of its North American beverage market, where volumes have been declining and profitability has shrunk due to rising commodity prices. Cost elimination, increased purchasing power and new revenue streams resulting from the acquisitions should add at least $200 million to annual pretax profit, PepsiCo said.  ÔÇ£Strategically, this represents a major about-face for PepsiCo and the entire beverage industry,ÔÇØ Faucher said.