Pepsi expected to up offers; SumTotal bidding war persists; Quigley prepares for investor vote

By Cristal Cody

Tupelo, Miss., May 19 - PepsiCo, Inc. ultimately is expected to increase its takeover bids for Pepsi Bottling Group Inc. and PepsiAmericas Inc. but first will play by the deal rulebook, an analyst said Tuesday.

In other proposals, SumTotal Systems, Inc. said Tuesday that it accepted a revised offer from Accel-KKR for $4.80 a share in cash, which bested a $4.75-a-share buyout offer from shareholder Vista Equity Partners Fund III, LP.

Still, investors suspect another buyout bid is likely, an analyst told Prospect News.

Meanwhile, Quigley Corp. adopted investigative tactics in its fight against dissident shareholder Ted Karkus, who has waged a proxy fight for board control. The showdown is set for Wednesday at the annual shareholders meeting.

On Wall Street, stocks pulled back after Monday's rally and closed mixed on Tuesday.

The Dow Jones Industrial Average fell 29.23 points, or 0.34%, to 8,474.85.

The Standard & Poor's 500 index lost 1.58 points, or 0.17%, to close at 908.13, while the Nasdaq Composite index rose 2.18 points, or 0.13%, to close at 1,734.54.

Hostile takeover 101

The lawsuit PepsiCo filed against Pepsi Bottling on May 11 is a "typical early tactic in hostile bids," an analyst said Tuesday.

PepsiCo said its largest bottler failed to give proper notice of a meeting where a majority of directors voted to reject the takeover bid and approve a shareholder rights plan.

Somers, N.Y.-based Pepsi Bottling and Minneapolis-based PepsiAmericas both have rejected the takeover offers of cash and stock valued at $29.50 per share for Pepsi Bottling and $23.27 per share for PepsiAmericas.

"We believe that Pepsi's negotiating position is strong ... and it is unlikely to overpay," the analyst said. "Pepsi already effectively controls its bottlers, determining the price at which the product is sold and bought, approving yearly marketing plans and having representation on the boards."

Purchase, N.Y.-based PepsiCo currently owns 33% of Pepsi Bottling Group and 43% of PepsiAmericas. The $6 billion deal would give PepsiCo 80% of the distribution of its North American beverage volume.

Pepsi Bottling's stock lost 5 cents, or 0.15%, to close at $32.50, while shares of PepsiAmericas rose 16 cents, or 0.63%, to $25.68 on Tuesday.

PepsiCo shares gained 44 cents, or 0.86%, to close at $51.61.

SumTotal on the rise

Private equity firm Accel-KKR first struck a deal with SumTotal for $3.80 a share on April 24.

The new offer represents a premium of 138.8% over SumTotal's closing share price on April 3, the last trading day before Vista Equity Partners offered $3.25 a share for the company.

Vista, SumTotal's largest shareholder with about 13% of outstanding shares, raised its offer to $4.50 a share and then on May 13 to $4.75 a share for the Mountain View, Calif.-based software solutions company.

SumTotal is allowed under the revised agreement with Accel-KKR to solicit other bids through Sunday. SumTotal will have to pay a $6.67 million termination fee to Accel-KKR if it accepts another offer.

Vista Equity Partners spokesman Diana Postemsky told Prospect News that the company has no comment on the latest offer.

Kevin Liu, an analyst with B. Riley & Co., Inc., told Prospect News on Tuesday that the buyout bid could go above $5.00 a share.

"Accel probably cut out a lot of costs by taking this private. It's not a crazy multiple even if it goes in the $5.00 range," he said.

"There's been acquisitions done at much higher multiples than this one is being done and by historical standards where SumTotal was trading six moths to a year ago you could see a higher bid," Liu said. "The stock price suggests the market thinks a higher bid will come in."

Shares of SumTotal closed up 8 cents, or 1.69%, at $4.81 on Tuesday.

The stock traded above $8.00 a share in 2007 but over the past year has traded from $1.24 to $5.15.

Quigley takes action

Quigley said Tuesday that it has evidence of an allegedly improper financial relationship between Karkus and Dr. Richard A. Rosenbloom, chief operating officer of the company's subsidiary, Quigley Pharma, Inc.

Quigley said in a statement the evidence shows undisclosed payments from Karkus to Rosenbloom since at least 2008. The company is investigating whether Karkus gained any material non-public information from Rosenbloom.

Karkus said in a statement Tuesday that he loaned Rosenbloom $55,000 over a six-month period for "personal purposes" and "did not seek, nor did he receive, any inside information in connection with the loan or otherwise."

"For the company to attempt to manufacture a scandal on the last day of voting is disgraceful," Karkus said.

The Doylestown, Pa.-based natural health medical science company and maker of Cold-EEZE lozenges has been fighting a proxy fight for board control by Karkus. Investors will vote on nominees at Wednesday's annual shareholders meeting.

Quigley said it has forwarded its evidence from the investigation to the company's audit committee and auditor, as well as federal and local authorities.

The company said it has suspended Rosenbloom pending further investigations and appointed Michael Petteruti as COO of the pharma division.

On Monday, Quigley said in a statement that it plans to explore alternatives to maximize shareholder value.

"The possible options being considered by the company currently include, licensing, joint venture, and if beneficial to the stockholders, the sale of the pharma division," Quigley said. "In addition, the company will be actively considering the separation of the OTC and pharma assets to further explore all means of maximizing stockholder value."

Derek Leckow, an analyst with Barrington Research Associates, Inc., told Prospect News on Tuesday that Quigley's branded products "are affected by the trends involving the flu and cold seasons."

"There is consolidation happening but it involves the large pharmaceutical companies trying to buy more pipeline products," he said. "There's not a lot of consolidation happening in the store brand industry."

Quigley's stock closed down 17 cents, or 2.66%, at $6.22 on Tuesday. Shares have traded from $2.85 to $6.70 over the past year.

Mentioned in this article:

PepsiAmericas Inc. NYSE: PAS

Pepsi Bottling Group Inc. NYSE: PBG

PepsiCo, Inc. NYSE: PEP

Quigley Corp. Nasdaq: QGLY

SumTotal Systems, Inc. Nasdaq: SUMT

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