NEW YORK, DEC 4: PepsiCo Inc on Monday said it will buy Quaker Oats Co in a $ 13.4 billion stock deal that gives the world's No 2 beverage company Quaker's Gatorade, the crown jewel of Sports drinks, and ends more than a month of speculation over who might acquire Quaker. The combined entity is expected to have a market value of more than $80 billion, which will place it among the world's five largest consumer products companies, the firms said in a joint statement. The agreed offer of 2.3 PepsiCo shares for each Quaker share matches the bid Chicago-based Quaker reportedly rejected from the Purchase, New York-based PepsiCo just over a month ago. Based on Friday's closing price, PepsiCo's offer is valued at $97.46 per Quaker share, representing a 10 percent premium over Quaker's closing price of $88-5/8 on the New York Stock Exchange Friday. The acquisition gives PepsiCo, whose Pepsi-Cola Co is the perennial No 2 behind beverage giant Coca-Cola, a big boost for its noncarbonated drinks business with the Gatorade brand. "Combining with the world-renowned PepsiCo organization will unleash the tremendous global growth potential of the Gatorade brand and leverage the strengths of our foods business," Robert Morrison, Quaker's chairman, said in a statement. Carbonated soft drinks, such as Pepsi and Mountain Dew, are still the mainstay of the PepsiCo's beverage business, but sales of non-carbonated beverages such as Aquafina bottled water are growing at a rapid clip as consumers' tastes become more varied. The transaction will require the issuance of about 315 million new shares to Quaker shareholders, and will "enhance PepsiCo's ongoing sales and profit growth rates," the companies said in their statement. "This will be a truly outstanding combination," Roger Enrico, PepsiCo's chairman and Chief executive, said in a statement. "Bringing together Quaker and PepsiCo creates a wealth of exciting growth opportunities as well as important cost and selling synergies. It is also very consistent with our sharp focus on convenient food and beverages." Under the terms of the agreement, if the value to Quaker shareholders falls below $92 per share, Quaker may exit the deal without penalty, the companies said. Also, PepsiCo's offer is capped at $105 a Quaker share. The deal is being accounted for as a pooling of interests and is expected to be completed in the first half of next year. It is expected to add to PepsiCo's earnings per share after the first full year, the firms said. Late last month, leading soft drink maker Coca-Cola Co backed away from its plans to buy Quaker. Days later, French food group Danone took itself out of the running for the cereal and Sports drink maker. On the executive front, Enrico detailed plans for his operational role ahead of his previously announced departure. Previously, he was set to step down as CEO before the end of 2001 and retire as chairman before the end of 2002. According to the companies' statement, when the deal is complete, Enrico and Morrison will become vice chairmen of PepsiCo. PepsiCo President Steven Reinemund will become the company's chairman and Chief executive at that time, the companies said. "The big news at this point is not Gatorade," Emanuel Goldman, beverage analyst at ING Barings, said late on Sunday. "It's Roger (Enrico) calling it a day so early, and Steve (Reinemund) taking over." Reinemund was named Pepsi's president and Chief operating officer last year after serving as chairman and CEO of Frito-Lay Worldwide, the company's largest and most profitable division. Indra Nooyi, PepsiCo's chief financial officer, will expand her duties and assume the additional post of president, the companies said. Morrison and Nooyi will be nominated for election to PepsiCo's board, the companies said. Morrison will continue to serve as Quaker's chairman, president and Chief executive, they added. Quaker will continue to be operated from Chicago and the combined company, which will retain the PepsiCo name, will have $25 billion in proforma revenues, the firms said. PepsiCo currently gets the majority of its revenues from snack chips unit Frito-Lay Co. In the third quarter ended Sept 2, Frito-Lay accounted for almost 62 percent of the company's revenues, Pepsi-Cola brought in 27.2 percent, and juice maker Tropicana Products Inc, the leader in the branded juice market, made up for about 11 percent of total sales. Chicago-based Quaker, whose food products include hot and cold cereals such as oatmeal and Cap'N Crunch, Rice-A-Roni side dishes, and Aunt Jemima pancake mix, has been the subject of merger rumors for years. It was thought to be too small to expand globally on its own.
