Pepsi plans to buy bottlers

For years, Pepsi (PEP) has owned its brands but its bottlers made and distributed them around the country. It is an odd system that breaks two critical elements into separate operating units.

Now, Pepsi want to change that paradigm. According to The Wall Street Journal, "PepsiCo Inc. launched a $6 billion takeover bid for its two largest independent bottlers late Sunday, a major strategy shift that signals the company's intention to overhaul how it makes and distributes its products to consumers."

The plan will begin by targeting the two largest distributors, Pepsi Bottling Group Inc (PBG). and PepsiAmericas Inc. (PAS).

The move will give Pepsi more control over how its brands are distributed, how much effort is given to its older core brands, and how much work will be put into marketing new water and energy drinks. But the cost of the action could be $8 billion or $9 billion, depending on whether Pepsi has to raise the price of its offers.

Pepsi is obviously making the case that it will earn more money owning the distributors, although the reasons it gives, which include some cost cuts and more control over product marketing channels, may not net significant results.

Spending over $8 billion during a recession is a lot to prove theories about synergies that may not be true.

Douglas A. McIntyre is an editor at 24/7 Wall St.


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