Pepsico: Analysis of Recent Acquisition

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Week 8 Assignment
ACC 401
03-12-12

PepsiCo: Analysis of Recent Acquisition 1

Abstract

While mergers and acquisitions can benefit companies with economies of scale, there are many pros and cons for businesses to consider. Throughout this document, a discussion of PepsiCo’s recent merger with Quaker Oats will be examined to ascertain what affects it will have on this oligopoly. A detailed analysis describing the current business structure, its competition, measurements regarding its position in the market, and arguments for and against the merger will be analyzed to determine the effect on the business environment.

PepsiCo: Analysis of Recent Acquisition 2

PepsiCo, Inc., incorporated in 1919, is a world leader in convenient foods and beverages, with revenues of about $27 billion and about 143,000 employees. The company consists of the snack businesses of Frito-Lay North America (FLNA) and Frito-Lay International (FLI); the beverage businesses of Pepsi-Cola North America, Gatorade/Tropicana North America and PepsiCo Beverages International; and Quaker Foods North America, manufacturer and marketer of ready-to-eat cereals and other food products, complement this world leader in convenient foods and beverages. In addition, in January 2001, the Company completed the acquisition of the beverage business of South Beach Beverage Company, LLC (SoBe). PepsiCo brands are available in nearly 200 countries and territories. Its share of the US soft-drink market is about 32% and Frito-Lay has about 58% of the US snack-chip market. (Pepsico, 2001) This analysis talks about the latest trend of mergers and acquisitions and the ensuing fallout. The concern here is about the $14 billion merger of PepsiCo and Quaker Oats. After a long delay with regards to granting permission for this merger, the Federal Trade Commission (FTC) finally gave the go ahead after it realized that there was a split in the opinion of its members. 50 percent of the members voted in favor and the rest against the decision for the merger. This committee was set up to investigate the fairness of the deal with respect to the marketing principles commonly followed. Due to the split in decision, the entire investigation was called off, allowing the deal to proceed. FTC staff had objected to this merger since they believed that this kind of merger would kill competition in the sports drink market segment. This would lead to an almost monopolistic scenario and give PepsiCo the overriding authority in cutting deals with convenience stores. (nutraingredients.com, 2001)

PepsiCo: Analysis of Recent Acquisition 3

This deal, under the able leadership of Steve Reinemund, created a formidable position of PepsiCo in the drinks and fast food segment. This would push the limit of the revenues to over $25 billions. This merger would mean that Gatorade, one of the leading sports drink, would come under the PepsiCo banner and thus give PepsiCo the leading edge especially over Coco- Cola, in the non- carbonated drink segment. This is because Coco-Cola’s PowerAde, a non- carbonated drink aimed at the sports segment has only 15% of the market share while Gatorade has over 80% of the share. The deal would also consolidate PepsiCo’s position in the ready-to- eat food segment. Quaker’s grain-based snacks and cereals like ‘Life’ and ‘Cap’n Crunch’ would now come under the Frito-Lay banner thus introducing more variety. (justdrinks.com, 2001) The case is definitely one of acquisitions and mergers. This case highlights the business strategies and tactics employed by big corporate houses to kill competition. PepsiCo is...
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