PepsiCo Proposes to Acquire Pepsi Bottling Group and PepsiAmericas

Upon acquiring the outstanding shares of the two bottlers, PepsiCo would handle distribution of about 80 percent of its total North American beverage volume, including both its direct-store-delivery and warehouse systems.

20/04/09 PepsiCo has proposed to acquire all of the outstanding shares of common stock it does not already own in its two largest anchor bottlers, The Pepsi Bottling Group and PepsiAmericas, at a value of $29.50 per share for The Pepsi Bottling Group and $23.27 per share for PepsiAmericas. This represents a premium of 17.1 percent over the closing price of the common stock of each company on April 17, 2009. Compared to the 30-day average closing prices, the offer prices represent a premium of 36 percent for PBG and 33.4 percent for PAS. PepsiCo currently owns 33% of the outstanding shares of PBG and 43% of the outstanding shares of PAS.

The offers consist of $14.75 in cash plus 0.283 shares of PepsiCo common stock for each share of PBG, and $11.64 in cash plus 0.223 shares of PepsiCo common stock for each share of PAS.

The total value of the shares PepsiCo is proposing to acquire is approximately $6 billion. The transaction is expected to be accretive to PepsiCo's earnings by at least 15 cents per share when synergies are fully realized.

If completed, the acquisitions would create a leaner, more agile business model and provide a stronger foundation for PepsiCo's future growth. Upon acquiring the outstanding shares of the two bottlers, PepsiCo would handle distribution of about 80 percent of its total North American beverage volume, including both its direct-store-delivery and warehouse systems.

PepsiCo Chairman and Chief Executive Officer Indra Nooyi said: "Our operating environment has evolved dramatically in the last decade. Retailers have continued to consolidate. New competitors have emerged. And non-carbonated drinks, which have different economics and different distribution systems than carbonated soft drinks, have become a much bigger factor in the industry and in our own portfolio. We believe that by reshaping our business model we can significantly improve our competitiveness and our growth prospects.

"Consolidating the bottling businesses with our franchise company would create many benefits," Ms. Nooyi said. "We could unlock significant cost synergies, improve the speed of decision making and increase our strategic flexibility. We would be able to present a more unified face to our retail and food service customers, which would better position us to provide customized solutions, as we do at Frito-Lay, and to take to a new level our 'Power of One' program of bundled food and beverage offerings."

The consolidation would create annual pre-tax synergies estimated to be more than $200 million, relating primarily to reducing redundant costs, achieving greater scale efficiencies and realizing new revenue opportunities.

Additional advantages

The consolidated business offers a range of additional potential benefits, including:

--  Ability to bring product and package innovation to market more quickly
--  More streamlined manufacturing and distribution systems
--  Greater flexibility in how the company goes to market, by product and channel
--  Improved national account coordination
--  Ability to react quickly to technological advances.


Close Working Relationships

PepsiCo's close working relationships with both bottlers has enabled the current system to function at a high level. "We have great respect for The Pepsi Bottling Group and PepsiAmericas, which share our values and are both true operating companies," said Ms. Nooyi. "Based on our history of successful acquisitions and our strong operating culture, we have a high degree of confidence that we would deliver a seamless integration."

Proposal Overview

The transaction would create significant financial benefits for shareholders of all three companies. Beyond the premium PBG and PAS shareholders would receive, all shareholders involved would have the potential to benefit from increases in the value of the combined enterprise through their holding of PepsiCo's common stock, as PepsiCo has offered 50 percent cash and 50 percent PepsiCo stock in the transaction.

PepsiCo does not foresee issues obtaining the customary regulatory approvals and the proposed acquisition is not subject to a financing contingency.

The proposals are subject to the completion of definitive merger agreements and limited confirmatory due diligence. The offers made for both PBG and PAS are cross-conditional based on the successful completion of both transactions.

For more information please access our website at: www.transactioninfo.com/pepsico.

As a large shareholder of both PBG and PAS, PepsiCo has indicated to both companies that it is committed to seeing these transactions completed and would not consider a disposition of its shares of either company.

PepsiCo expects that PBG and PAS would each rely upon a committee of independent directors to analyze PepsiCo's proposals. As a result, there can be no assurance that either proposal will be accepted, or that if such proposals are accepted, the transactions will be consummated.