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.
I bought C at $2.99 in early July, got tired of seeing all the banks trade in a narrow range, and cashed out on July 31 with an 8-cent/share gain. Of course, today, the shares are up more than $1 from where I bought them, in 1 week! How on earth can you predict something like this?
Thanks, Alice
Jim
What are your take on T and VZ? They have not participated as much in this rally and have nice yields would you buy in anticipation of possible rotation into them?
Hey Jim:
So great to have you back. Hated having you off the air for awhile, but it got me more confident making some of my own calls.
I actually held PEP for awhile before you bought it back, but I sold it a bit too early…same old song.
I keep having this nagging sense that we’re involved in an economic upheaval of more than normal proportions and that new companies and new ideas are going to have to lead the comeback if/when it is finally to come. So I’m a bit curious as you pick and hold big traditionals like MSFT and PEP and MCD through this…especially when its been the NASDAQ and the newer companies like MXWL that are innovating with the potential to grow.
Still, I bought MSFT, and JOYG, and QCOM with you recently and will hold. Great to have you as an anchor and great to have you back.
Jed from Seattle