Pepsi wins Quaker Oats battle

Pepsi is reported to have beaten its great rival Coca-Cola to Gatorade

The US drinks giant PepsiCo has clinched a deal to buy Quaker Oats for $13.4bn in stock.

The deal follows a protracted battle for Quaker which had also seen Coca-Cola and France's Danone line up bids.

Gatorade: 80% of the US sports drinks market

The main prize for the purchaser is seen as Gatorade, which has about 80% of the $2.5bn US sports drink market.

The addition of Quaker will propel Pepsi to a place among the world's top five consumer products companies with a market value of more than $80bn.

"Combining with the world-renowned PepsiCo organisation will unleash the tremendous global growth potential of the Gatorade brand and leverage the strengths of our food business," Quaker chairman Robert Morrison said in a statement.

Pepsi chairman and chief executive Roger Enrico said the combination would create "a wealth of exciting growth opportunities as well as important cost and selling synergies".

Boardroom revolt

Under the takeover plan, Pepsi is offering 2.3 of its shares for each Quaker share - an offer unchanged from Pepsi's previous bid for the company just over a month ago which Quaker rejected.

Based on Pepsi's closing share price of $42.38 on Friday, the offer would be worth $97.46 per Quaker share.

This represents a 10% premium over Quaker's Friday closing price of $88.63.

After Pepsi's earlier offer, Coca-Cola and Danone had both emerged as other potential buyers.

Pepsi revenue (third quarter)

Frito-Lay snacks 62%

Pepsi-Cola 27%

Tropicana fruit juices 11%

Coca-Cola's proposed $15.7bn takeover was agreed by Quaker but later collapsed following a boardroom revolt at the drinks giant led by billionaire investor Warren Buffett.

The new Pepsi offer is believed to include a price protection clause, which would allow Quaker to walk away from the deal if Pepsi shares dropped below $40 each for a period of 10 random days in the month before closing.

If that happened, Pepsi would then have to raise its offer to $92 per Quaker share to keep the deal alive.

Powerful addition

Quaker, best known as a manufacturer of breakfast cereals, also owns Gatorade - the market leader in the fast-growing sports drinks sector.

Pepsi's existing portfolio of non-carbonated drinks includes Aquafina water, Lipton teas and Tropicana fruit juices.

It also includes All-Sport, which commands about 3% of the US sports drinks market and may be sold to satisfy competition regulators if the Quaker deal goes ahead.

Gatorade would be a powerful addition to Pepsi and far overshadow the presence in the domestic sports drinks market of its arch rival Coca-Cola, whose Powerade drink has about 11% of sales.

Quaker Oats' food products would also complement Pepsi's snack range, analysts said.

The Quaker deal is Pepsi's second big victory over Coca-Cola in recent months.

In October, Pepsi pipped Coca-Cola to South Beach Beverage Company - maker of the Sobe herb and vitamin enhanced drinks aimed at the youth market - buying a 90% stake.

Coca-Cola had been thought to have been circling South Beach for several months.

Management changes

Pepsi and Quaker also gave details of changes in senior management to be effective on completion of their merger.

Mr Enrico and Mr Morrison are to become vice chairmen of Pepsi while Pepsi president Steven Reinemund will take over as chairman and chief executive.

Mr Enrico had previously not been expected to step down as chief executive until late next year or retire as chairman before the end of 2002.

Mr Reinemund - who became Pepsi president and chief operating officer last year - was previously chairman and chief executive of Frito-Lay Worldwide, Pepsi's biggest and most profitable division.

Indra Nooyi, Pepsi's chief financial officer, will take on the additional post of company president while Mr Morrison will remain Quaker's chairman, president and chief executive.