Compared to, say, information technology or pharmaceuticals, the consumers products business doesn't change dramatically over time. Tastes and distribution patterns do evolve, though, with interesting consequences for the industry's structure.
Thus, 10 years after the spinoff of majority stakes in its bottling operations got underway with a $2.3 billion IPO, PepsiCo Inc. (NYSE:PEP) is now proposing to buy back the bottlers with an offer valued at around $6 billion.
In a
release, Indra Nooyi -- now CEO and in 1999 Pepsi's corporate dealmaker -- cites multiple benefits from the bottler buy, including efficiency and cost synergies.
But the most important reason, she says, is the shift from soda pop to "noncarbonated drinks, which have different economics and different distribution systems than carbonated soft drinks, (and) 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."
As reported by Deal Journal, Nooyi says Pepsi, which now gets 60% of beverage sales from noncarb drinks, wants to compete more effectively with niche suppliers on that front. The company would like to be able to launch a noncarb product via warehouse distribution, then move it over into the bigger bottling channel without having to first sell the bottler on the idea.
Deal Journal notes that the
bid was a surprise to the CEOs of the two bottlers, Eric Foss of Pepsi Bottling Group and Robert Pohlad of PepsiAmericas.
But the shift to noncarbonated teas, juices and enhanced water drinks obviously wasn't. Check out this March
profile of Pepsi Bottling Group in Beverage World. Like PepsiCo, PBG has been steadily reducing the percent of carbonated beverages it sells; the proportion is now around 65%, the article says.
PBG is also PepsiCo's partner in the recent purchase of a 76% stake in Russian juice company JSC Lebedyansky for $1.4 billion. PepsiCo bought 75% of that holding, PBG the rest. -
Kenneth Klee
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