Pepsi Bottling Group Holds Out for More Money

Pepsi Bottling Group, Inc. has rejected PepsiCo's proposal to buy back remaining shares in the bottler, calling the offer "grossly inadequate."

Two weeks ago, PepsiCo made a combined $6 billion bid to buy back Pepsi Bottling along with PepsiAmericas -- though the offer stipulated that both bottlers had to accept or the deal was off. PepsiCo currently owns 33 percent of Pepsi Bottling and 43 percent of PepsiAmericas, after spinning off the bottlers in the late '90s.

At the time of the offer, the amount was 17 percent higher than the companies' stock prices, but since then, Pepsi Bottling has been trading above the $29.50 per share offering price. Furthermore, Pepsi Bottling argued in its rejection letter, PepsiCo "substantially understated the synergies" that would result from the merger.

Most analysts seem to agree that the offer is low, and two pension funds with Pepsi Bottling Group holdings have filed a lawsuit to block the bottler from accepting the deal unless PepsiCo raises its bid.

PepsiCo sold off Pepsi Bottling in 1999 following the Coca-Cola Company's decision to sell its own bottlers, based on the logic that bottlers have lower margins and wind up weighing down the soft drink companies.

But as sports drinks and fruit juices become more popular, eliminating the almost exclusive focus on carbonated soft drinks, it could make more sense for PepsiCo to combine its distribution channels -- making the company "more nimble" as CEO Indra Nooyi put it.

There's some speculation that Coca-Cola will attempt a similar move, especially if the buyback goes well for PepsiCo, though CEO Muhtar Kent dismissed the idea, saying Coca-Cola is happy with its current model.

PepsiAmericas has yet to respond to PepsiCo's offer, but no one seems to question that the deal will go through. As Reuters reported, "The takeover seems almost inevitable, it's just a matter of price."