PepsiCo threatens to walk from bottler bid

By Martinne Geller

NEW YORK (Reuters) - PepsiCo Inc (PEP.N) hinted it could walk away from its proposed takeover of Pepsi Bottling Group Inc (PBG.N), even as the bottler tried to make its case for a higher bid.

Pepsi Bottling, which also on Tuesday raised its earnings forecast for the current quarter and full year, laid out several reasons why PepsiCo's bid is too low, especially since Pepsi Bottling's performance is improving as cash-strapped consumers buy cheaper drinks, and costs for raw materials like aluminum, fuel and corn fall.

For the first time since April when it launched a $6 billion unsolicited takeover bid for its two largest bottlers, Pepsi Bottling and PepsiAmericas Inc (PAS.N), the soft drink and snack maker signaled that it might back away and that Pepsi Bottling could remain independent.

"PepsiCo has a track record of being a disciplined buyer and will maintain that disciplined approach in this transaction," PepsiCo said in a statement. "If in the future PepsiCo remains a stockholder in a public PBG, PepsiCo intends to maintain a disciplined stance with regard to the commercial arrangements between PBG and PepsiCo."

PepsiCo's statement came after Pepsi Bottling hosted a conference call with analysts on which it said PepsiCo's cash and stock offer implied a multiple of 12.5 times the midpoint of its new 2009 earnings forecast, well below its historic average of 15.1 times.

The bottler also said it had discussed a plan with PepsiCo that did not require the soft-drink maker to acquire its bottlers, but would save the Pepsi system $750 million to $850 million. That is well above the $200 million synergy target PepsiCo had estimated.

PepsiCo affirmed its $200 million savings target and said it sees no justification for the bottler's estimate of $750 million to $850 million.

Edward Jones analyst Jack Russo said he was surprised by the twists and turns, given how close the companies are, with PepsiCo being Pepsi Bottling's largest shareholder and supplier.