The Pepsico Company: the Quaker Oats Acquisition
Company Overview
By the end of 1999, following a multi-year restricting effort, PepsiCo had once again become one of the most successful consumer products companies in the world. In less than four years, it had achieved am 80% increase in net income, on 30% lower sales, and with 75% fewer employees. PepsiCo’s major subsidiaries were the Pepsi-Cola Company, which was the world’s largest manufacturer and distributor of snack chips, and Tropicana Products, the largest marketer of branded juices.
Throughout 1999, PepsiCo was closely tracking several potential strategic acquisitions. In the fall of 2000, it appeared that the right moment for an equity-financed acquisition had arrived. At this time, PepsiCo management decided to initiate confidential discussion with The Quaker Oats Company about a potential business combination. Gatorade, a key brand in Quaker’s portfolio, had long been on PepsiCo’s wish list.
On October 5, 2000, an investment-banking team from Merrill Lynch met with the top executives of PepsiCo to discuss a possible business combination between PepsiCo and Quaker. The goals of the meeting were:
• To assess the value of Quaker’s businesses;
• To estimate potential synergies associated with a Pepsi-Quaker merger; and
• To come up with an effective negotiation strategy.
PepsiCo executives were confident that Quaker’s beverage and snack food business could contribute to Pepsi’s profitable growth in convenience foods and beverages. However, PepsiCo’s managers, led by CEO Roger Enrico and CFO Indra Nooyi, were committed to upholding the value of PepsiCo shares, and as a result, they were determined not to pay too much for Quaker.
PepsiCo’s Origin and History
In the summer of 1898 Caleb D. Bradham, a young man pharmacist from North Carolina, looked for a name that would better describe the “Brad’s Drink,” his concoction of carbonated water, sugar, vanilla and kola nuts. He decided to buy the name “Pep Kola” from the local competitor, which he later changed to
By the end of 1999, following a multi-year restricting effort, PepsiCo had once again become one of the most successful consumer products companies in the world. In less than four years, it had achieved am 80% increase in net income, on 30% lower sales, and with 75% fewer employees. PepsiCo’s major subsidiaries were the Pepsi-Cola Company, which was the world’s largest manufacturer and distributor of snack chips, and Tropicana Products, the largest marketer of branded juices.
Throughout 1999, PepsiCo was closely tracking several potential strategic acquisitions. In the fall of 2000, it appeared that the right moment for an equity-financed acquisition had arrived. At this time, PepsiCo management decided to initiate confidential discussion with The Quaker Oats Company about a potential business combination. Gatorade, a key brand in Quaker’s portfolio, had long been on PepsiCo’s wish list.
On October 5, 2000, an investment-banking team from Merrill Lynch met with the top executives of PepsiCo to discuss a possible business combination between PepsiCo and Quaker. The goals of the meeting were:
• To assess the value of Quaker’s businesses;
• To estimate potential synergies associated with a Pepsi-Quaker merger; and
• To come up with an effective negotiation strategy.
PepsiCo executives were confident that Quaker’s beverage and snack food business could contribute to Pepsi’s profitable growth in convenience foods and beverages. However, PepsiCo’s managers, led by CEO Roger Enrico and CFO Indra Nooyi, were committed to upholding the value of PepsiCo shares, and as a result, they were determined not to pay too much for Quaker.
PepsiCo’s Origin and History
In the summer of 1898 Caleb D. Bradham, a young man pharmacist from North Carolina, looked for a name that would better describe the “Brad’s Drink,” his concoction of carbonated water, sugar, vanilla and kola nuts. He decided to buy the name “Pep Kola” from the local competitor, which he later changed to