The deal is done.
On August 4, PepsiCo (PEP) announced that it had completed deals to buy all the remaining shares of it5s tow biggest bottlers, Pepsi Bottling (PBG) and Pepsi Americas (PAS). The price is about $1 billion more than PepsiCo originally offered. (The total comes to $7.8 billion.) But that’s less than I was afraid PepsiCo would have to offer to get control of these bottlers, especially after they both announced better than expected earnings for the second quarter.
On the news, I’m going to raise my target price for PepsiCo in my Jubak’s Picks portfolio.
The deal has huge upside for PepsiCo. Of course, there’s the cost savings. (Or as they’re called on Wall Street, “the synergies.”) PepsiCo figures it will be able to get cost savings of about $300 million by combining the companies.
But that’s not the biggest value in the deal for PepsiCo. By owning its bottlers, the company gains control over what it sells where, and the ability to adjust its mix of sodas, sport drinks, bottled water, and juice to more closely match market trends in the very tricky and fast-changing North American market.
As of August 4, I’m upping by target price to $67 a share by June 2010 from the current $62 by March 2010.