Pepsi Bottling Group raises forecasts

by Eric Schroeder
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SOMERS, N.Y. — Citing its strategy, nimbleness in the market and motivated and capable people delivering good results during all types of market conditions, Pepsi Bottling Group (P.B.G.) on June 2 raised its guidance for the second quarter and full year. The company said it now expects to deliver earnings per share of 70c to 74c in the second quarter, up 5c per share from its previous guidance issued on April 22, and e.p.s. of $2.30 to $2.40 for the full year, up 10c per share. In addition, P.B.G. raised its full-year operating cash flow forecast to $525 million, up $25 million from its previous guidance and up $75 million since the start of the year.

"The strength of our performance during the first half of 2009 illustrates the success of our global pricing strategy, our cost and productivity initiatives, and our execution at the point of sale," said Eric Foss, chairman and chief executive officer, during a June 2 conference call with securities analysts.

In referring to P.B.G. in the conference call as a "strategic gem that holds the key to unlocking value across the Pepsi system," Mr. Foss continued the company’s recent strategy of leveraging for a higher bid price from Purchase, N.Y.-based PepsiCo, Inc. PepsiCo offered to buy P.B.G., its largest bottler, and PepsiAmericas Inc., its second-largest bottler, on April 20 for approximately $6 billion.

But the board of directors for P.B.G. in a May 4 letter to PepsiCo rejected the offer, saying the proposed acquisition price "substantially" undervalued P.B.G. and understated the synergies available through the combination proposal.

During the June 2 conference call, P.B.G. said the three-way transaction including PepsiAmericas may generate annual savings of $750 million to $850 million, a figure PepsiCo disputed.

"After careful review and analysis, PepsiCo remains convinced that there are annual synergies of at least $200 million through the consolidation of the two anchor bottlers and PepsiCo," PepsiCo said in a June 2 statement. "PepsiCo believes there is no justification for the estimates that P.B.G. released today of purported annual synergies of at least $750 million to $850 million. By way of comparison, P.B.G. previously communicated to PepsiCo that a combination of P.B.G. and PepsiAmericas would generate synergies well below $100 million."

For the moment, PepsiCo appears unwilling to budge from its proposed acquisition price, calling it "a full and fair price," and may walk away from the transaction all together.

"PepsiCo has a track record of being a disciplined buyer and will maintain that disciplined approach in this transaction," PepsiCo said. "If in the future PepsiCo remains a stockholder in a public P.B.G., PepsiCo intends to maintain a disciplined stance with regard to the commercial arrangements between P.B.G. and PepsiCo."

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