PepsiCo to acquire Pepsi Bottling Group, PepsiAmericas; Trump wants Atlantic City casinos back

By Stephanie N. Rotondo

Portland, Ore., Aug. 4 - The big news of the day Tuesday was PepsiCo, Inc.'s announcement that it will reacquire its bottlers in cash-and-stock deals valued at a combined $7.8 billion.

The planned mergers with Pepsi Bottling Group, Inc. and PepsiAmericas, Inc. are expected to not only be accretive to earnings but also help future growth. At least one analyst speculates the deals will get done this time. PepsiCo had tried - and failed - a takeover in April.

Elsewhere, Donald Trump has teamed up with a lender to buy back Trump Entertainment Resorts Inc. The company is currently in bankruptcy.

The equity market zigzagged some during the session and managed to end firmer. The Dow Jones Industrial Average gained 33.63 points, or 0.36%, to close at 9,320.19. The Standard & Poor's 500 index improved 3.02 points, or 0.30%, to 1,005.65, while the Nasdaq Composite index moved up 2.70 points, or 0.13%, to 2,011.31.

PepsiCo to reacquire bottlers

Under the terms of PepsiCo's offer, Pepsi Bottling shareholders can choose either $36.50 in cash or 0.6432 shares in exchange for their holdings. PepsiAmericas is getting a similar deal, at $28.50 in cash or 0.5022 shares.

In April, PepsiCo made unsolicited offers for both companies. The new deals represent a 23% premium to the offer made to Pepsi Bottling and a 22% premium for PepsiAmericas.

PepsiCo currently holds a 33% interest in Pepsi Bottling and a 43% interest in PepsiAmericas. The two companies were spun off from PepsiCo in 1999.

All told, the mergers are expected to create annual pre-tax synergies of $300 million by 2012, "largely due to greater cost efficiency and also improved revenue opportunities." In addition, the acquisitions are expected to be accretive to earnings by 15 cents per share by 2012.

The deals will help PepsiCo generate revenues and revenue growth in North America and will eliminate third-party distributors for its snack products, an analyst said.

"It's getting rid of the overlap from distribution," David Silver of Wall Street Strategies said in an interview with Prospect News.

PepsiCo will directly manage about 80% of its North American beverage distribution once the mergers are completed.

"PepsiCo has had a constructive partnership with PBG and PAS over the past 10 years," commented Indra Nooyi, PepsiCo's chairman and chief executive officer, in a prepared statement. "While the existing model has served the system very well, it is clear that the changing dynamics of the North American liquid refreshment beverage business demand that we create a more flexible, efficient and competitive system that can drive growth across the full range of PepsiCo beverage brands.

"Our shared culture, strong operational leadership and ability to successfully integrate operations - in this case operations we know very well - should allow us to bring the businesses together quickly and seamlessly."

In the statement, Pepsi Bottling chairman and CEO Eric Foss said, "This transaction provides outstanding value for PBG shareholders, offers new and expanded opportunities for PBG employees and positions the combined company to accelerate growth going forward. After a thorough evaluation process, the PBG board concluded that this transaction represents full and fair value and is the best outcome for PBG shareholders, employees and customers. Ultimately, the transaction positions the entire Pepsi system to continue to win in the marketplace."

"I think this is a good deal for both parties," Silver said. "It's good all around. I think this gets done."

The mergers are expected to be completed by late 2009 or early 2010.

PepsiCo's stock rose $2.88, or 5.12%, to $59.08, while Pepsi Bottling's shares increased $2.82, or 8.39%, to $36.44. PepsiAmericas equity also ended better, up $2.34, or 8.95%, at $28.49.

Trump eyes casino buyback

Donald Trump will attempt to revitalize the Atlantic City casinos bearing his name in a deal with BNAC Inc., an affiliate of Beal Bank Nevada.

Trump and BNAC plan to invest $100 million into the bankrupt casinos and hotels on the Jersey Shore and have plans to restructure approximately $486 million in debt. News reports quoted Trump as saying the initial $100 million is only a small portion of what he expects to put into the company.

Under the agreement, Trump has secured an extension on the debt to December 2020 from 2012.

The company will be privately held and offers no recovery for current shareholders under the reorganization plan.

"As a private enterprise under the ownership of the Trump family and BNAC, the company will be well capitalized and positioned for success, and we are hopeful for the court's expeditious approval so that the new capital can start being invested," Mark Juliano, Trump Entertainment's current CEO, said in a statement.

"I am pleased that the reorganization affords me an opportunity to make a new investment and help revive a company that has borne my name, but not performed to my standards or been under my management," Trump said. "My daughter Ivanka and I will work tirelessly to make this company great again."

Trump's shares improved by 12 cents, or 80%, to $0.26.

Mentioned in this article:

PepsiAmericas Inc. NYSE: PAS

Pepsi Bottling Group Inc. NYSE: PBG

PepsiCo, Inc. NYSE: PEP

Trump Entertainment Resorts Inc. Pink Sheets: TRMPQ

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