DealZone

PepsiCo Inc’s offers to buy its two bottling affiliates has dragged on and on and could be a distraction for the companies as they begin planning for 2010.
    
Bill Pecoriello, CEO of ConsumerEdge Research, said he believes PepsiCo would only be willing to raise its offer 10 percent and that would be insufficient to entice Pepsi Bottling Group to the negotiating table.
    
Pecoriello said the soda saga has dragged on longer than he expected and there’s no catalyst in sight to trigger talks. 
    
“The biggest worry is that it becomes a distraction. You get to the point when you have to start planning for 2010 and everyone is in limbo,” Pecoriello said.
    
PepsiCo’s strategy could be to let time pass and hope PepsiBottling’s shares drift lower — making the $29.50 per share offer look more enticing. Still, PepsiCo has room to raise its offer and it would be attractive for the soda giant even if it paid in the upper $30-per-share range, Pecoriello said. PepsiCo could afford to pay in the high $20-per-share range for PepsiAmericas.
    
If PepsiCo walked away from the deal, it would have to invest $400 million to improve the performance of its North American beverage business, he said. Rival Coca-Cola is gaining momentum and could pressure PepsiCo.
    
PepsiCo has said its offers were “full and fair.”

Broadcom’s tender offer for Emulex shares may be techland’s first hostile deal this year, but unwanted moves seem to be fairly popular across the rest of the M&A landscape. At any rate, more popular than last year.

This year, 30 percent of all deals involving U.S. public companies have been “unfriendly,” compared with 21 percent in the same period last year, according to FactSet MergerMetrics data. In absolute numbers, there were more such deals last year (23) than this year (18).

In its definition of “unfriendly” deals, FactSet includes both unsolicited offers, in which “the acquirer has publicly disclosed its offer to acquire the target,” and hostile deals, in which “the target’s board has formally rejected the unsolicited offer and the acquirer has continued to try and get control of the target.”

Pepsi Bottling has rejected PepsiCo’s $6 billion offer for it and its main bottling competitor as “grossly inadequate”. Given the two-headed nature of this best, don’t be surprised to hear the same story from PepsiAmericas. On a price-to-earnings basis, the offer values Pepsi Bottling at a 6 percent discount to PepsiCo, and PepsiAmericas at a 9 percent discount, according to JP Morgan analysts, and the 17 percent premium offered to both was greeted with little enthusiasm, particularly once the bottlers, and PepsiCo, beat forecasts with their first-quarter earnings.

As Jessica Hall has reported, an unusual condition requiring both bottlers agree may actually encourage the two to fight independently for the best price. Deutsche Bank analyst Marc Greenberg told her a 10 percent increase in the offer price would still create value for shareholders of the three companies involved, and UBS analyst Kaumil Gajrawala said the takeout premiums seemed small compared with the proposed benefits and synergies outlined. Gajrawala said the offers for Pepsi Bottling and PepsiAmericas could go as high as the mid-$30s and mid-$20s, respectively.

Deals of the day:

* Fiat SpA’s chief executive visits Berlin on Monday to try to convince Germany’s political leaders to sign up to his vision for a new European car giant by letting him take over General Motors Corp’s Opel unit.