Newspaper article THE JOURNAL RECORD

Merger Places PepsiCo at Top of Market

Newspaper article THE JOURNAL RECORD

Merger Places PepsiCo at Top of Market

Article excerpt

NEW YORK (AP) -- While the sport drink Gatorade was the big prize in the $13.8 billion deal for Quaker Oats, PepsiCo officials are also salivating over the possibilities that Quaker brings for boosting its sales of snacks and fruit drinks.

The all-stock deal announced Monday instantly makes PepsiCo the leader in the fast-growing sports drink market, where the nation's second biggest soft drink concern was a bit player with its All Sport brand. Gatorade is the sports drink category leader.

But PepsiCo Chairman and Chief Executive Roger A. Enrico said Quaker's clout in the non-carbonated beverage aisle could also pay dividends by getting retailers to provide shelf space for its Tropicana division's growing line of fruit drinks like Tropicana Twisters.

The market for non-carbonated soft drinks is about $16 billion versus $58 billion for carbonated soft drinks but is growing much faster, according to the industry trade publication Beverage Digest.

Enrico said Quaker's granola bars, rice cakes and fruit bars will complement the Frito-Lay division's industry-leading lineup of salty snacks like Tostitos corn chips and Lay's potato chips and could gain wider distribution in stores.

Quaker gives PepsiCo "legitimacy overnight" as a provider of nutritious foods that can be eaten on the run at breakfast or to provide energy in the late afternoon, he added.

Enrico told analysts and investors in a conference call on Monday that the deal represented "one terrific moment" for both companies, and said that the purchase would boost PepsiCo's sales and earnings growth by at least 1 percent a year.

He said the deal should create $230 million in extra revenue and cost savings by the fifth year after it closes.

"This is one of the most positive acquisitions I've ever seen," said veteran beverage industry analyst Emanuel Goldman of ING Barings in San Francisco.

Marc Cohen, beverage analyst for Goldman Sachs in New York, said some investors had been worried PepsiCo would boost the price it offered a month ago to get Quaker, but those fears proved unfounded. …

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