PepsiCo to Distribute Certain Dr Pepper Snapple Group Brands
09 Dec 2009 --- Under the terms of the agreement, DPS will receive an upfront payment of $900 million payable upon closing of the acquisitions. The agreement between PepsiCo and DPS, which will replace existing agreements PBG and PAS have with DPS, will have an initial term of 20 years, with automatic 20 year renewals thereafter.
9 Dec 2009 --- PepsiCo has reached an agreement with Dr Pepper Snapple Group, Inc. (DPS) to manufacture and distribute certain DPS products following completion of PepsiCo's acquisition of its two anchor bottlers, The Pepsi Bottling Group, Inc. (PBG) and PepsiAmericas, Inc. (PAS).
Under the terms of the agreement, DPS will receive an upfront payment of $900 million payable upon closing of the acquisitions. In exchange, PepsiCo will be entitled to manufacture and distribute Dr Pepper and certain other DPS products in the territories where they are currently distributed by PBG and PAS. The agreement between PepsiCo and DPS, which will replace existing agreements PBG and PAS have with DPS, will have an initial term of 20 years, with automatic 20 year renewals thereafter.
"We are delighted that we have reached a mutually beneficial agreement with Dr Pepper Snapple Group to continue to distribute their products," said Indra K. Nooyi, PepsiCo's Chairman and Chief Executive Officer. "PepsiCo is fully committed to vigorously expand, flawlessly distribute and grow Dr Pepper Snapple's brands in its appointed territories."
Under the new agreement, PepsiCo will distribute: Dr Pepper, Crush and Schweppes brands in the United States; Dr Pepper, Crush, Schweppes, Vernors and Sussex brands in Canada; and Squirt and Canada Dry brands in Mexico.
The agreement was anticipated after PepsiCo and its bottlers earlier this year reached an agreement under which PepsiCo would acquire the two anchor bottlers. PepsiCo is on track to complete the acquisitions, subject to regulatory and stockholder approval. The company filed its Form S-4 Registration Statements in preliminary form on October 1, 2009 and expects to close on the proposed transactions by the end of the first quarter of 2010.
Concurrent with the announcement, PepsiCo has filed with the SEC amendments to its preliminary registration statements on Form S-4 relating to the acquisitions to disclose updated financial and other information.
In its fiscal 2009 fourth quarter, PepsiCo has begun to step-up investments in targeted areas that will support improved growth and profitability in 2010 and beyond. For example, PepsiCo is making infrastructure investments in developing markets, such as China, to drive increased penetration and distribution of both carbonated and non-carbonated beverages. It has also increased investments in differentiated science-based R&D to accelerate the company's health and wellness transformation.
For fiscal 2009 PepsiCo expects constant currency net revenue to be up about five percent. The company also expects division operating profit to increase about six to seven percent and EPS to increase about five to six percent, each in core constant currency, off of its fiscal 2008 core EPS of $3.68. Based on current spot rates, foreign exchange translation would represent about a five percentage point adverse impact to PepsiCo's full-year, core constant currency EPS.
For fiscal 2010 the company reaffirms its target of 11 to 13 percent growth for core constant currency EPS off of expected fiscal 2009 core EPS. This target excludes one-time costs to achieve the synergies associated with its acquisitions of PBG and PAS and assumes the company completes the acquisitions by the end of the first quarter of 2010. Please refer to the glossary for more information about the items excluded from the company's fiscal 2009 and 2010 constant currency core EPS guidance.
The company has not yet received regulatory or PBG or PAS shareholder approval for the acquisitions or resolved all comments from the Securities and Exchange Commission on its Form S-4 Registration Statements. In addition, the company is still in the process of completing its annual planning process and its integration planning. Any of these factors, as well as the risks described under "Cautionary Statement" later in this release, the risks described in our most recent annual report on Form 10-K and subsequent reports on Forms 10-Q and 8-K and in the company's Form S-4 Registration Statements with respect to the acquisitions could materially adversely impact the company's ability to achieve these results.
For Dr. Pepper/Snapple (DPS), the one-time payment is expected to be recognized over the estimated life of the license agreement and recorded as net sales. Net proceeds from this transaction will be used to reduce the company's overall debt obligations in-line with its target capital structure of approximately 2.25 times total debt to EBITDA after certain adjustments.
"We're confident that this new arrangement, which maintains our balanced and flexible routes to market, is in the best interests of our brands and our shareholders," said Larry Young, president and CEO of DPS. "It demonstrates the value and growth potential of these great brands and strengthens our third-party route to market while benefiting our own Packaged Beverages business. We're excited to be working with PepsiCo and are confident in the continued long-term growth of our business."
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