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Pepsi's Bids for Bottlers Shake Up Beverages Industry

Exploit the changing soft drinks landscape by investing in the category leaders.

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Given our outlook for weak consumer spending growth during the next few years, the nonalcoholic beverages industry is a good place to look for investment ideas. Still, even this industry is facing change. In April 2009,  PepsiCo (PEP) made offers totaling $6 billion to acquire the outstanding shares of  Pepsi Bottling Group (PBG) and  PepsiAmericas (PAS), two of its key bottlers. However, the following month, both bottlers rejected Pepsi's approach, claiming that the offer prices undervalued both companies' equity. The ball is now in Pepsi's court, with investors waiting to discover whether the beverage and snacks behemoth intends to raise its offers.

We think that PepsiCo's strategy will shake up the soft drinks industry in North America. In this report, we discuss the background to Pepsi's offers, we indicate why we think the offers are part of a sound shift in strategy by Pepsi, and we suggest ways for investors to exploit the changing landscape in the nonalcoholic beverages industry. But first, here's a little history.

Philip Gorham does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.