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CEO: Pepsi to Be Transformed by Acquisition of Two Largest Bottlers

PURCHASE, N.Y. -- Retailers can expect more cross-promotional activity between PepsiCo's beverages and Frito-Lay snacks as the soda giant completed the $7.8 billion acquisitions of its two largest bottlers, The Pepsi Bottling Group Inc. and PepsiAmericas Inc., according to PepsiCo Chairman and CEO Indra Nooyi.

With the mergers completed, PepsiCo is now 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," Nooyi told the press during a conference call Monday morning. "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."

PepsiCo's announcement comes just days after Coca-Cola Co. announced plans to buy the North American operations of its largest bottler, Coca-Cola Enterprises Inc. (CCE) in a substantially cashless deal that is expected to cut costs and increase flexibility in its distribution. CCE's North American business comprises roughly 75 percent of its U.S. bottler-delivered sales volume and almost all of its Canadian bottler-delivered volume. Coke already owns roughly 34 percent of CCE.

With its mergers, PepsiCo said it will be positioned in North America to increase beverage pairings with savory snacks to provide unique offers to retailers and foodservice operators; further joint promotions, shared display space, product bundling and shopper insights to address consumers' desire for greater value; consolidate 80 percent of its North American beverage manufacturing, sales and distribution under one roof, enabling greater operating efficiencies and speed-to-market of new items; cut costs by consolidating three public companies into one; and leverage the operating experience of the Frito-Lay, Quaker, Tropicana and Gatorade operations across its bottling business.

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 that sum will be reinvested in high-growth emerging markets, global research and development and new operating capabilities.

In light of the merger, the company's PepsiCo Americas Beverages (PAB) segment has been reorganized. PAB, which encompasses PepsiCo's beverage businesses across the Americas, will be comprised of two business units. Eric J. Foss, formerly chairman and CEO of The Pepsi Bottling Group, will lead the newly combined bottling operations called Pepsi Beverages Company (PBC). 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.

"We now have the power to create a system that is not only bigger, stronger and faster, but also leaner, simpler and more agile," Foss told reporters.

On Coca Cola's move, Foss said, "This confirms [consolidating the bottling companies under PepsiCo] is the right strategy for North America. As before their announcement, we will continue to play our game and we are ready to go; they are just getting starting. This deal is more transformational and has greater opportunities for us."

PepsiCo's consolidation will provide one voice and one face to retailers across brands, a more streamlined supply chain and, over time, faster speed-to-market of innovations and a flexible route to market, whether through PepsiCo's direct-store or warehouse-delivery systems, according to Foss.

The company remains committed to bottlers who remain independent, he added. "We're very committed to the franchise model, so the reality is we have a great relationship with them. I, and others on the team, [have been] bottlers and I expect that the relationship will do nothing but get better."

In addition, the company's new flexibility will allow it to develop brands on either coast, watch how the products incubate in the market and make a decision based on sell-through though various channels, then decide whether to distribute it though the warehouse or direct-store system, Foss explained.

PepsiCo will continue to produce Dr. Pepper brands, with both Foss and Nooyi saying the brand is very important to the PepsiCo business model. "The way we structured Pepsi Beverage Companies, we will continue to be the go-to-market for Pepsi products and allied products, and Dr. Pepper is first amongst that list. It is a very important product for us and we have a very productive partnership."

The beverage company's distribution relationship with Muscle Milk will continue as well.

The Pepsi Bottling Group and PepsiAmericas common stock ceased trading on The New York Stock Exchange at the close of the market on Friday and has been de-listed.

Related News:

Coca-Cola to Buy North American Bottling Operations

Pepsi Bottling Group to Acquire California Bottler
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