PepsiCo Completes Transformative Bottling Acquisitions

PURCHASE, N.Y., March 1 /PRNewswire-FirstCall/ -- PepsiCo (NYSE: PEP) announced today that it has completed the $7.8 billion strategic acquisitions of its two largest bottlers, The Pepsi Bottling Group, Inc. and PepsiAmericas, Inc.  

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With the completion of the mergers, PepsiCo today is the largest food and beverage business in North America and the second-largest in the world, with nearly $60 billion in annual revenues and approximately 285,000 employees.  It also is the global leader in savory snacks.  

"Today marks Day One of the new PepsiCo," said Chairman and CEO Indra Nooyi.  "Bringing together these three great companies enables us to create the industry's fastest, most flexible and most efficient food and beverage system.  It will leverage the capabilities of our entire enterprise -- what we call The Power of One -- to achieve many years of healthy, profitable growth.

"This investment opens up a broad range of new growth opportunities around the world, particularly in North America, which accounts for the majority of our revenues and offers the prospect of significant growth.  We have approximately 115,000 employees in the U.S. alone, and we are committed to continuing to invest in this critically important market."

PepsiCo reiterated previous guidance that it expects to achieve 11 percent to 13 percent core constant currency EPS growth in 2010.  It also said it expects to achieve low-double-digit core constant currency EPS growth in 2011 and 2012.  (Please refer to the glossary for definitions of constant currency and core. Core results and core constant currency results are non-GAAP financial measures that exclude certain items. Please refer to "Reconciliation of GAAP and Non-GAAP information" for a description of these items).

"We have devoted the last 10 months to meticulously planning the integration of our companies, and we are fully prepared to launch our new enterprise starting today," Nooyi said.   "Most important, we have an exceptionally strong and experienced leadership team in place and ready to go."

POWERFUL STRATEGIC ADVANTAGES

With the mergers, PepsiCo will have a unique set of strategic advantages which will provide the greatest benefits in North America and Europe, where the bottlers have operations:

• It is the global leader in savory snacks, and those snacks can be paired with its beverages in the marketplace.  Those pairings will enable PepsiCo to provide unique offerings to retail and foodservice customers.  
• 80 percent of its North American beverage manufacturing, sales and distribution system will be consolidated under one roof, enabling greater operating efficiencies and speed-to-market.  
• It consolidates three public companies into one, creating significant cost savings.
• It can leverage across its bottling business the vast scale and operating experience associated with its Frito-Lay, Quaker, Tropicana and Gatorade operations.  
• It will be well positioned to leverage its total scale and breadth -- through joint promotions, shared display space, product bundling, shopper insights and programs that address consumers' strong desire for greater value.
• In Europe and Mexico it will have much more integrated operating systems, with the ability to more quickly implement and execute marketplace programs.   The combined company will be especially well positioned to capture the clear growth opportunity in the dynamic non-carbonated beverage segment.

SIGNIFICANT SYNERGIES

The transactions are expected to create pre-tax synergies of approximately $125 million to $150 million in 2010 and approximately $400 million annually once fully implemented by 2012. The initial synergies are due principally to greater cost efficiencies, but later years are a balance of cost savings and new revenue-generating opportunities.  

The company said some of the synergies will be reinvested in high-growth emerging markets, global research and development, and new operating capabilities.

EXPERIENCED LEADERSHIP

After more than 10 months of planning with The Pepsi Bottling Group and PepsiAmericas for the integration of the three companies, and leveraging the experience gained in its 2001 merger with Quaker, PepsiCo has named a full management team for the new beverage organization.  

In light of the merger, the company's PepsiCo Americas Beverages (PAB) segment has been reorganized to ensure operating speed and accountability.  PAB, which encompasses PepsiCo's beverage businesses across the Americas, will be comprised of two business units.

Eric J. Foss will lead the newly combined bottling operations, called Pepsi Beverages Company (PBC) and Massimo F. d'Amore will continue to lead Gatorade, Tropicana and Latin America Beverages as CEO of PepsiCo Beverages Americas (PBA).  He also remains responsible for PAB marketing and franchise management.  The operations of The Pepsi Bottling Group and PepsiAmericas in Europe will be consolidated into PepsiCo Europe, led by CEO Zein Abdalla.

The Pepsi Bottling Group and PepsiAmericas common stock ceased trading on The New York Stock Exchange at the close of the market on Friday, February 26 and have been delisted.

About PepsiCo

PepsiCo offers the world's largest portfolio of billion-dollar food and beverage brands, including 19 different product lines that each generates more than $1 billion in annual retail sales. Our main businesses - Frito-Lay, Quaker, Pepsi-Cola, Tropicana and Gatorade - also make hundreds of other nourishing, tasty foods and drinks that bring joy to our consumers in more than 200 countries. With annualized revenues of nearly $60 billion, PepsiCo's people are united by our unique commitment to sustainable growth, called Performance with Purpose. By dedicating ourselves to offering a broad array of choices for healthy, convenient and fun nourishment, reducing our environmental impact, and fostering a diverse and inclusive workplace culture, PepsiCo balances strong financial returns with giving back to our communities worldwide. In recognition of its continued sustainability efforts, PepsiCo was named for the third time to the Dow Jones Sustainability World Index (DJSI World) and for the fourth time to the Dow Jones Sustainability North America Index (DJSI North America) in 2009. For more information, please visit www.pepsico.com.

Cautionary Statement

Statements in this communication that are "forward-looking statements" are based on currently available information, operating plans and projections about future events and trends. They inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements. Such risks and uncertainties include, but are not limited to: changes in demand for PepsiCo's products, as a result of changes in consumer preferences and tastes or otherwise; damage to PepsiCo's reputation; trade consolidation, the loss of any key customer, or failure to maintain good relationships with PepsiCo's bottling partners; PepsiCo's ability to hire or retain key employees or a highly skilled and diverse workforce; unstable political conditions, civil unrest or other developments and risks in the countries where PepsiCo operates; changes in the legal and regulatory environment; PepsiCo's ability to build and sustain proper information technology infrastructure, successfully implement its ongoing business process transformation initiative or outsource certain functions effectively; unfavorable economic conditions and increased volatility in foreign exchange rates; PepsiCo's ability to compete effectively; increased costs, disruption of supply or shortages of raw materials and other supplies; disruption of PepsiCo's supply chain; climate change or changes in legal, regulatory or market measures to address climate change; PepsiCo's ability to realize the full extent of the benefits and cost savings expected from the mergers with The Pepsi Bottling Group, Inc. (PBG) and PepsiAmericas, Inc. (PAS); PepsiCo's ability to realize the anticipated cost savings and other benefits expected from the mergers with PBG and PAS; failure to renew collective bargaining agreements or strikes or work stoppages; and any downgrade of PepsiCo's credit rating resulting in an increase of its future borrowing costs.

For additional information on these and other factors that could cause PepsiCo's actual results to materially differ from those set forth herein, please see PepsiCo's filings with the SEC, including its most recent annual report on Form 10-K and subsequent reports on Forms 10-Q and 8-K. Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. PepsiCo undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Glossary

Core: Core results are non-GAAP financial measures. PepsiCo's fiscal 2009 core EPS was $3.71.  Core results exclude the commodity mark-to-market net impact included in corporate unallocated expenses and certain restructuring actions. 2009 core results also exclude costs associated with our mergers with PBG and PAS, as well as our share of PBG's and PAS's respective merger costs included in bottling equity income. Core EPS guidance for the full-years 2010-2012 exclude the commodity mark-to-market net impact included in corporate unallocated expenses, estimated one-time costs to achieve synergies and any additional restructuring or integration costs related to the mergers with PBG and PAS.  Core EPS guidance for 2010 also excludes the gain or loss on previously held equity interests in PBG and PAS, the post-merger one-time impact to earnings of fair value adjustments to acquired inventory, the one-time charge related to the change to hyperinflationary accounting and devaluation in Venezuela, any additional restructuring or integration costs and transaction costs related to the mergers with PBG and PAS. For more details and reconciliations of our 2009 core results and 2010-2012 core constant currency EPS guidance, see "Reconciliation of GAAP and Non-GAAP Information."  

Constant currency: Financial results (historical and projected) assuming constant foreign currency exchange rates used for translation based on the rates in effect for the comparable prior-year period. In addition, the impact on EPS growth is computed by adjusting core EPS growth by the after-tax foreign currency translation impact on core operating profit growth using PepsiCo's core effective tax rate.  

Reconciliation of GAAP and Non-GAAP Information

(unaudited)

Core constant currency EPS growth is a non-GAAP financial measure as it excludes certain items noted below.  However, we believe investors should consider this measure as it is more indicative of our ongoing performance and with how management evaluates our operational results and trends.  

In the year ended December 26, 2009, we recognized $274 million of mark-to-market net gains on commodity hedges in corporate unallocated expenses.  We centrally manage commodity derivatives on behalf of our divisions.  Certain of these commodity derivatives do not qualify for hedge accounting treatment and are marked to market with the resulting gains and losses recognized in corporate unallocated expenses.  These gains and losses are subsequently reflected in division results when the divisions take delivery of the underlying commodity.

In the year ended December 26, 2009, we incurred $50 million of costs associated with our mergers with PBG and PAS, as well as an additional $11 million of costs in the year ended December 26, 2009, representing our share of the respective merger costs of PBG and PAS, recorded in bottling equity income.

As a result of our previously initiated Productivity for Growth program, we recorded restructuring and impairment charges of $36 million in the year ended December 26, 2009.  The program includes actions in all segments of the business, including the closure of six plants that we believe will increase cost competitiveness across the supply chain, upgrade and streamline our product portfolio and simplify the organization for more effective and timely decision-making.

We believe investors should consider our 2009 diluted EPS excluding the impact of restructuring and impairment charges, costs associated with our mergers with PBG and PAS and the mark-to-market net gains on commodity hedges

We are not able to reconcile our full-year projected 2010-2012 core constant currency EPS to our full-year projected 2010-2012 reported results because we are unable to predict the 2010-2012 full-year impact of foreign exchange or the mark-to-market net gains or losses on commodity hedges due to the unpredictability of future changes in foreign exchange rates and commodity prices.  Additionally, with respect to our mergers with PBG and PAS, we are unable to predict the amounts or timing of any additional restructuring or integration costs.  Therefore, we are unable to provide a reconciliation of this measure.

Diluted EPS Reconciliation

SOURCE PepsiCo