PepsiCo Inc.: Expansion in Japan and Bottler Battles

July 5, 2009
Recently announced partnership will increase market presence in the Far East, while company continues pursuit of its two largest bottlers

Prawn crackers are in PepsiCo Inc.'s future. The Japanese snack food is one of several products the company will produce for the country through a partnership with Calbee Foods Co., PepsiCo said in a June 24 statement.

Under the agreement, PepsiCo will provide its Frito-Lay Japan business unit along with an undisclosed cash payment to Calbee for a 20% share of the venture and a seat on Calbee's board of directors. The products the companies will produce include Calbee potato chips, Kappa Ebisen prawn crackers, Jagarico and Jagabee potato snacks, Doritos tortilla chips, Cheetos corn snacks and Mike popcorn. The company also will offer vegetable snacks and breakfast cereals.

PepsiCo estimates the businesses will generate annual revenues of $1.4 billion. The partnership will not be final until it's approved by the Japanese government.

Meanwhile, PepsiCo continues its battle to acquire Pepsi Bottling Group (PBG) and PepsiAmericas Inc., its two largest bottling companies. PepsiCo issued a statement on June 2 disputing Pepsi Bottling Group's estimate that the buyout would save PepsiCo between $750 million and $850 million. PepsiCo claims it would save approximately $200 million from the acquisition.

PepsiCo initially offered $6 billion to purchase its remaining stakes in the two companies. Both companies rejected the offer. PepsiCo filed a lawsuit on May 11 alleging that the PBG intentionally failed to notify the PBG directors affiliated with PepsiCo about a board meeting, during which a shareholder rights, or "poison pill," plan was adopted.

PepsiCo Inc.
At A Glance

PepsiCo Inc.
Purchase, N.Y.
Primary Industry: Beverages
Number of Employees: 198,000
2008 In Review
Revenue: $43.25 billion
Profit Margin: 11.89%
Sales Turnover: 1.20
Inventory Turnover: 8.46
Revenue Growth: 9.57%
Return On Assets: 14.85%
Return On Equity: 29.84%
PepsiCo claims the PBG board agreed to new executive compensation arrangements that are invalid because of a lack of notice and consideration by the full board. PBG Chairman and CEO Eric Foss will receive at least $16.5 million if PepsiCo's takeover attempt succeeds, according to Bloomberg News.

PepsiCo also alleges PBG and its board breached their commitments to shareholders by adopting the poison pill plan because it restricts PepsiCo's rights as a PBG shareholder and represents an "unreasonable and disproportionate response to PepsiCo's constructive proposal," PespsiCo reported in a May 11 statement.

PepsiCo is coming off a first quarter during which profit was flat at $1.14 billion compared with $1.15 billion in the year-earlier period. Revenue fell slightly to $8.26 billion from $8.33 billion during the first three months of 2008.

The company expects mid- to single-digit revenue and earnings per share growth for the full year.

More recently, PepsiCo became a member of Ceres, a coalition of investors, environmental groups and public interest organizations working to address environmental issues.

PepsiCo joins more than 25 other corporations in the network. PepsiCo has undergone several sustainability initiatives over the past three years, including its Performance with Purpose program launched in 2006. Performance with Purpose includes commitments to reduce water consumption by 20%, fuel consumption by 25% and electricity consumption by 20% per unit of production by 2015.

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