Pepsi in $7.8 Billion Merger Deal with Two Biggest Bottlers

PepsiCo is buying its two biggest bottlers for $7.8 million. (Mario Tama/Getty Images)

PepsiCo Inc. announced that it would buy out its two biggest bottlers for a combined value of $7.8 billion. The company said that the move was aimed at helping it cut costs and possibly increase distribution, which has grown very slowly for several years.

The company is buying out remaining shares in Pepsi Bottling Group Inc. and PepsiAmericas Inc. PepsiCo valued the stocks of the two companies at $36.50 for Pepsi Bottling and $28.50 for PepsiAmericas. The deal is a half-cash, half-stock deal.

The prices represent a 22 percent premium over what PepsiCo had initially offered both companies in April this year. PepsiCo already owns major shares in both companies.

The deal is expected to save PepsiCo almost $300 million by the year 2012, as the merged company will integrate its supply chains for greater efficiency and cost reductions.

The mergers will also bring back together the two companies—Pepsi Bottling spun off from PepsiCo in 1999.

PepsiCo chairman and Chief Executive Indra Nooyi said that while the “existing model has served the system very well,” the changes in the nature of the beverage industry “demand that we create a more flexible, efficient and competitive system.”

With the deal, PepsiCo will now own 80 percent of its distribution in North America, giving it control over its share of the beverage vertical market by owning both the manufacturing and distribution chains, allowing it to better compete against its larger competitor Coca-Cola Co.

Pepsico said last month that its second-quarter profits fell as its beverage volume for the North American region fell by 6 percent. The company’s Gatorade product experienced declines despite a new marketing campaign.

Shares of all three companies rose following the announcement.