In a move to control distribution costs, PepsiCo. offered on April 20 $6 billion to purchase PepsiAmericas and Pepsi Bottling Group. According to Indra Nooyi's talking points, there are at least $200 million in negative synergies that can be eliminated through this transaction! PepsiAmericas (the local tie) filed its obligatory 8-K the next day.
Why isn't this grabbing the attention of the local press! $6 billion is never something to yawn at, but especially when there's a dearth of deal activity here in town!
The Pohlad family owns PepsiAmericas (PAS). PEP is offering $23.27/share of PAS -- 50% of the consideration is cash, and the remainder is PEP stock. With an extra 17% per share over the April 17 closing price, we could really compete in the AL Central (or purchase snow removal equipment for next April's games)!
PepsiCo. expects the deal to be immediately accretive by $0.15/share upon full realization of synergies. Because both companies are public, it's fairly easy to model this and test it. I am working on that, and will get back with my findings.
On a legal note, though, much of the buzz is discussing the structure of the deal. Whether it's a forward- or reverse-merger has significant tax obligations.
In short, in a reverse merger PepsiCo creates a subsidiary (which ultimately extinguishes by operation of law) and gets a "stepped-up basis" in PAS. This reduces its future tax liability when/if it sells off PepsiAmericas and PAS shareholders are forced to pay capital gains. PEP wins; PAS loses.
In a forward merger, PepsiCo again sets up a subsidiary, but this time the sub "swallows" PAS
so that PAS extinguishes by operation of law. Its a tax-free transaction for the Pohlads, but PEP receives a lower basis (read, higher tax bill in the future). PEP loses; PAS wins.
We will see how this plays out...
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