Pepsi Bottling Group Inc. said Monday that it has rejected what it called a "grossly inadequate" acquisition offer from PepsiCo Inc., but analysts said that doesn't mean the deal is over, just that Pepsi needs to offer more money.
The Somers, New York-based Pepsi Bottling Group also looked to shield itself from other bids it deems unfavorable, saying it had approved a stockholder rights plan. Such plans, also known as "poison pills," are commonly used as a way to try to hold off hostile takeover attempts.
The $6 billion proposal for Pepsi Bottling and PepsiAmericas would have let PepsiCo control about 80 percent of its total North American beverage volume. The company said last month in announcing its offer that buying the bottlers would allow the company to be more nimble, save money and help it navigate an industry that places less focus on soft drinks and more on healthier water and juices by making it easier to get products to stores.
Purchase, New York-based PepsiCo did not immediately return a message left seeking comment Monday.
Pepsi Bottling Group, which Pepsi spun off in 1999, said in a letter sent to PepsiCo Chairman and Chief Executive Indra Nooyi that it values its relationship with PepsiCo, but would not agree to a deal that doesn't reflect its "true value." PepsiCo owns about 33 percent of Pepsi Bottling Group and 43 percent of Minneapolis-based PepsiAmericas.
Pepsi Bottling told the maker of drinks like Sierra Mist and Pepsi colas that the offer, made April 20, "is at virtually no premium to market" given its first-quarter performance and the company's increased forecasts.
It noted that PepsiCo made the offer two days before Pepsi Bottling's first-quarter earnings, when it announced its quarterly profit more than doubled on a favorable tax audit settlement, which led it to boost its earnings forecast for the year. The results easily beat Wall Street's expectations.
Pepsi Bottling also said Pepsi underestimated the savings it could achieve with such a deal. PepsiCo said it would save at least $200 million a year before taxes if it were to consolidate its bottlers, but Pepsi Bottling told Nooyi the company would save that amount many times over.
Pepsi Bottling said its board's rejection of the offer was based on the unanimous recommendation of a special subcommittee of independent directors.
The board also approved retention arrangements for some key workers and bylaw amendments related to notice and information requirements for stockholders.
Pepsi's offers equated to $29.50 per for share for Pepsi Bottling Group and $23.27 per share for PepsiAmericas.
Bill Pecoriello, an analyst who heads ConsumerEdge Research LLC, said Pepsi should see at least $600 million in savings if it were to buy out its bottlers and more realistic prices are at least $38 a share for Pepsi Bottling and $28 a share for PepsiAmericas. He expects PepsiAmericas to also reject the offer as inadequate.
"We believe these transactions will get done and that the bottlers will meet PepsiCo somewhere in the middle," he said.
Frost & Sullivan analyst Christopher Shanahan said given how well Pepsi Bottling is performing, it makes sense they want more money. Pepsi, he said, will want to pay since the moves would help it improve its business, so he figures the deal will eventually go through.
Standard & Poor's analyst Esther Kwon wrote to clients Monday that Pepsi Bottling Group will likely see higher profits as its volumes of carbonated beverages and single-serves improve, and it sees lower raw material costs.
She said the outlook for bottlers has improved, so she increased her target price by $1 to $32.
"While we think a deal could be a positive, we are not fully convinced of the proposal's merits," she wrote.
PepsiAmerica's transactions committee is currently reviewing the proposal, said spokeswoman Mary Viola. She said the company would not comment on Pepsi Bottling's rejection.
Shares of Pepsi Bottling Group fell 12 cents to $31.29 in afternoon trading Monday, while shares of PepsiAmericas rose 8 cents to $24.50. Shares of Pepsi fell 79 cents to $49.
AP Retail Writer Michelle Chapman contributed to this report from New York.