New York, June 3 - PepsiCo Inc hinted it could walk away from its proposed takeover of Pepsi Bottling Group Inc, even as the bottler tried to make its case for a higher bid.
Pepsi Bottling, which also Tuesday raised its earnings forecast for the current quarter and full year, laid out several reasons why PepsiCo's bid is too low, especially since Pepsi Bottling's performance is improving as cash-strapped consumers buy cheaper drinks, and costs for raw materials like aluminum, fuel and corn fall.
For the first time since April when it launched a $6 billion unsolicited takeover bid for its two largest bottlers, Pepsi Bottling and PepsiAmericas Inc , the soft drink and snack maker signaled that it might back away and that Pepsi Bottling could remain independent.
"PepsiCo has a track record of being a disciplined buyer and will maintain that disciplined approach in this transaction," PepsiCo said in a statement. "If in the future PepsiCo remains a stockholder in a public PBG, PepsiCo intends to maintain a disciplined stance with regard to the commercial arrangements between PBG and PepsiCo."
PepsiCo's statement came after Pepsi Bottling hosted a conference call with analysts on which it said PepsiCo's cash and stock offer implied a multiple of 12.5 times the midpoint of its new 2009 earnings forecast, well below its historic average of 15.1 times.
The bottler also said it had discussed a plan with PepsiCo that did not require the soft-drink maker to acquire its bottlers, but would save the Pepsi system $750 million to $850 million. That is well above the $200 million synergy target PepsiCo had estimated.
PepsiCo affirmed its $200 million savings target and said it sees no justification for the bottler's estimate of $750 million to $850 million.
Edward Jones analyst Jack Russo said he was surprised by the twists and turns, given how close the companies are, with PepsiCo being Pepsi Bottling's largest shareholder and supplier.
"It would seem that this would be a much smoother process," Russo said.
Pepsi Bottling shares fell 3.2 percent in light after-hours trade, after rising 2.9 percent to $34.17 on the New York Stock Exchange.
HIGHER EARNINGS LEAD TO HIGHER BID?
This is the second time in less than two months that Pepsi Bottling has raised its 2009 earnings outlook as it tries to get PepsiCo to increase its bid.
"A proposal was made, it was rejected by our board, the ball is in PepsiCo's court," Pepsi Bottling Chief Financial Officer Al Drewes told the conference call.
For the second quarter, Pepsi Bottling said it now expects to earn 70 to 74 cents a share, up from its prior view of 65 to 69 cents.
It also said it expects full-year earnings of $2.30 to $2.40 a share, up from its prior forecast of $2.20 to $2.30.
PBG's improved outlook buoyed shares of other bottlers, with Coca-Cola Enterprises Inc and Dr Pepper Snapple Group Inc both closing up more than 3 percent. PepsiAmericas, the other bottler target, closed up 2.2 percent.
PepsiCo offered $29.50 per share for Pepsi Bottling and $23.37 per share for PepsiAmericas -- 17 percent premiums over the target companies' closing stock prices the day before the offers were made as Pepsi seeks to cut costs and secure more control of its distribution system.
PepsiCo already owns 33 percent and 43 percent of the outstanding shares of Pepsi Bottling and PepsiAmericas, respectively. Both bottlers rejected the offers, saying they undervalued the companies' strengths and strategies.