PepsiCo offers to buy
2 bottlers for $6 billion

NEW YORK - PepsiCo Inc.'s $6 billion bid to buy its two largest bottlers should make the owner of the Gatorade, Naked juices and Aquafina brands more nimble in a landscape where soft drinks have declined in popularity in favor of healthier options like water and juices.

The deals for Pepsi Bottling Group and PepsiAmericas would let PepsiCo control about 80 percent of its total North American beverage volume - something the company and analysts said would streamline the process of getting newer or smaller products to stores.

Consumers could see products such as Izze sparkling juice and Naked fruit juices at more places, Chief Financial Officer Richard Goodman said, since the company would be able to negotiate with retailers directly rather than persuading the bottlers that now control most distribution to include smaller products in their network.

'There is a need to be more nimble given the increasing role of (non-carbonated beverages), retailer consolidation and the changing competitive landscape,' PepsiCo Chairman and Chief Executive Indra Nooyi said.

The move shows how much the landscape has changed since 1999, when PepsiCo spun off Pepsi Bottling Group. At the time, the spinoff was a way for Pepsi to have a stake in a company that focused solely on making the soft drinks that dominated the market and were growing strongly.

Since then, though, soft drink sales have slowed, Pepsi added more non-carbonated beverages like Tropicana and Gatorade, and a different model is needed, Nooyi said.

'A move this big changes the entire landscape of the industry,' said John Sicher, editor of the trade publication Beverage Digest. 'Today the beverage business consists of a greater diversity of products, and PepsiCo needs more control and flexibility over the route to market for its brands.'

Although ultimately the decision of what goes on store shelves lies with retailers, the move gives Pepsi more direction over its products by eliminating negotiations with independent bottlers and consolidating distribution.

The new system should improve the 'speed of decision-making across the company and eliminate friction points resulting from competing manufacturing and distribution systems,' Nooyi said. She said new products that start out small in one system could be switched to another with little trouble.

Pepsi now has three beverage businesses: a bottler-distributed soft drink business, a warehouse-delivered sports drink business and a warehouse-delivered juice business, said Deutsche Bank North America analyst Marc Greenberg. Consolidating them offers Pepsi cost savings, control over pricing and a more competitive system than its rivals, Greenberg said.

However, it also gives the company a larger stake in the more volatile bottler business, which is affected by packaging and other costs.

PepsiCo, which had been trying to cut costs, expects the deals to boost earnings by 15 cents per share when the cost savings are fully realized and save $200 million per year before taxes. Analysts said the savings could even be as much as $400 million.