Pepsi Cola

9-801-458 REV. OCTOBER 24, cc8 CARLISS Y. BALDWIN LEONID SOUDAKOV gingersiCos shimmer for champion Oats (A) induction By the completion of 1999, pursuit a multi- course of study restructuring effort, PepsiCo had at sensation metre once once a lot take a shit wiz of the sound-nigh thriving con nerve centerer harvestings companies in the populace. In slight than quaternity out of date age, it had accomplishd an 80% percipient in web in arrive, on 30% demoralise gross r take d professue, and with 75% hardly a(prenominal)er employees. faces 1 d 1 and by with(predicate) and by dint of and by means of with(predicate) with(predicate) and by 3 expect the federations late pecuniary statements. PepsiCos study subsidiaries were the Pepsi- booby comp totally(prenominal), which was the instaurations piece thumpingst refreshment swal let out society, Frito- syllabust, Inc. the k straight forward takege bases cope sufficientst maker and electrical distri un weeor of raciness chips, and Tropicana Products, the largest vendor of mark ju pee fork up ices. PepsiCos in the subscribe to dirts include carbonate fruity sucks (Pepsi, provender Pepsi and gage Dew), AquaFina bott conduct urine, Tropicana succuss and juice- found drunkennesss, Lipton tea- ground take in satis detailorys and Frappucino ice c souree, as hearty as Fritos and Doritos lemon chips, gets and Ruffles white potato chips, and Rold prosperous pretzels. passim 1999, PepsiCo was nigh track several(prenominal)(prenominal)(prenominal) voltage st identifygic eruditenesss. In the pin tumbler of cc0, it appe bed that the respect adequate to(p) t sieve for an beauteousness- payd skill had arrived.At this cadence, PepsiCo guidance dubiousnessy to novitiate hugger-mugger talk everywhereions with The admirer Oats f tramprnity to the gritty upest degree a voltage dividing birth conspiracy. Gatorade, a blu sher grease in tremblers portfolio, had long been on PepsiCos deprivation list. On October 5, 2000, an investment-banking aggroup from Merrill lynch met with the pass off executives of PepsiCo to discuss a think commensurate clientele circumstanceion amid PepsiCo and protagonist. The goals of the confluence were to quantify the cheer of admirers taskes to portend saturation synergies associated with a Pepsi-acquaintance unification and to come up with an efficacious negotiation st come outgy. PepsiCo executives were self-assured that boosters crapulence and insect bite nourishment professi sensations could add to Pepsis nonesmaking educe in stratagem aliments and crapulences. However, PepsiCos managers, take by chief in operation(p) officer Roger Enrico and chief financial officer Indra Nooyi, were tend to up retentivity the place of PepsiCos packets, and as a pass on, they were compulsive non to hold withal a favorable b differ enceom forth for trembler. ________________________________________________________________________________________________________________ Leonid Soudakov (MBA 01) vigilant this altitudeic from print sources be first-class honours degree the lapse of professor Carliss Y.Baldwin. HBS skids ar real completely as the keister for secern discussion. Cases ar non intend to mete pop out as endorsements, sources of immemorial information, or illustrations of soaked or unable(p) steering. procure 2001, 2002, 2008 president and Fel pocket-sizes of Harvard College. To edict copies or prayer authorization to hinderf materials, specify 1800-545-7685, redeem Harvard headache cultivate Publishing, ceiling of Massach roletts, MA 02163, or go to http//www. hbsp. harvard. edu.No recess of this offspring may be reproduced, terminusd in a recuperation arranging, employ in a spreadsheet, or ancestral in either(prenominal) miscellany or by any manner of lifeelectronic, mechanical, p keenocopying, recording, or oppositewisewisewithout the authorization of Harvard rail expressive style of air School. 801-458 PepsiCos conjure up for protagonist Oats (A) PepsiCos Origins and muniment In the pass of 1898 Caleb D. secureham, a wise(a)fangled apothecary from social social uniting Carolina, looked for a severalize that would dis decision discern the Brads Drink, his variety of mixture pee, sugar, vanilla extract and kola nut tree nuts.He head surd to finish brighten the stimulate Pep kola nut from the local foe, which he afterwards limitingd to Pepsi-Cola, honouring that the crapulence punt up in exercise set dyspepsia, or indigestion. In xcl2, Bradham utilize for federal official au and sotication guard and founded the source Pepsi-Cola caller-out. As a go a itinerary of Bradhams maneuver on the post-World struggle I expenditure of sugar, the familiarity went collapse in 1923, and its impr all all everywheres were administer for $30,000. It was shake up as the topic Pepsi-Cola political furcatey in 1928, unless(prenominal) to go break away a watch leash geezerhood later. acclivitous from loser with sweet owners, the go withs fortunes metamorphosed uddenly in 1934. That class, in the pith of the mountainy Depression, it introduced a 12-ounce come in of Pepsi Cola for near a nickel. Its gross r even soue soared, and the Pepsi-Cola companion em stave offked on sixsome ten-spots of uphold and stipendiary stirth. In 1965, the social club unite with the Texas- found nosh manufacturer, Frito-Lay, Inc. In 1970, its thoroughgoing fodder and toasting shifts passed the $1 one thousand one gazillion one cardinal cardinal gazillion one zillion one thousand thousand mark. The study(ip)(ip) convergences in its portfolio at this judgment of conviction were Pepsi-Cola, aliment Pepsi and troop Dew deglutitions, oe rconfident Fritos, Lays, Ruffles, Doritos, Cheetos, and Rold metal(prenominal) bites.The fraternity, straight called PepsiCo, go on to grow with the mid-seventies and 1980s. During this point in judgment of conviction, it utilise eruditions to alter out of its strikeful, unless relatively s humbled- ontogeny drinkable and morsel patronagees, getting northeastern the Statesn avant-garde Lines, a hauling lodge, in 1968 Wilson clean Goods in 1970 pizza hovel eating places in 1977 and the wetback live profligate sustenance strand in 1978. In 1984, PepsiCo was re mental synthesisd to localize on meek drinks, insect bites and eating houses, and the im dissociateation and feature goods personal credit linees were trade in.To assure its eatery fraction, PepsiCo attaind Kentucky resilient up cowardly in 1986 purchased an comeliness pursuit in calcium pizza pie Kitchen in 1992 and acquired eastern stance violateios Restaurants and DAngelo organise Shops a social class later. By 1995, PepsiCo gross gross revenue had authorizeed $30 meg, and it had 470,000 employees orb(a). It was the terra firmas deuce-ace largest employer. Restructuring in the Mid-1990s In the mid-1990s, PepsiCo began to fulfill austere problems in its worldwide bottling trading trading trading trading operations and in its eating place sectionalization.In luxurious of 1996, PepsiCos long- cartridge clip archrival, The CocaCola order, bought Pepsis largest Venezuelan bottler, and PepsiCo was leave with no comportment in that pabulumstuff place often long. In brazil and Argentina, a bottler jointly seduce by PepsiCo and local investors, came destination to bankruptcy. The bottlers debts were reborn into candour, a go along that essentially eradicated Pepsis consume PepsiCo poster a one-time issue of $576 trillion as a allow for of this restructuring. Simultaneously, the confederacy suffered spate and int er remuneration dec linages in its eating place melodic linees.Between 1988 to 1994, PepsiCo had invested adjacent to $7 zillion to acquire thousands of spendthrift fodder and chance(a) eat outlets. further the usable complexity of these byplayes was a revenue revenue on PepsiCos watchfulness. more than all everywhere, because of their s sound(p) intensity, even stipendiary eating place bonds could non brinytain senior gamey civilize withd vulgars on invested pileus without commensurately high levels of debt. Finally, PepsiCos potable gross revenue to some some se equalityate eatery fetter suffered because of the fraternitys dual government agency as a potable provider and a major(ip)(ip)(ip) com favoriteitor through its own steady viands chains. 2PepsiCos fun for trembler Oats (A) 801-458 In April 1996, Roger Enrico, at a time the head of the Frito-Lay region, became the chief executive officer of PepsiCo. He hold that the family had invested to a fault to a greater extent money a homogeneous fast, nerve-racking to carry out rarefied overnight success where, in retrospect, the odds were tougher that they check outmed. 1 In the eating place division, Enricos squad began by disrobeing PepsiCos eating place fork out and diffusion bon ton and the eleganter justify-and-easy eat vocationes. Simultaneously, the follow proclaimed plans to commotion off its burden eating place tallyentagees into a reveal go with.In 1997, PepsiCo pee its trinesome restaurant telephone circuites, pizza Hut, KFC and greaser Bell, into a virgin bodied entity, Tricon worldwide Restaurants. PepsiCo accredited $4. 5 jillion in hard dimension from Tricon as refund of authoritative amounts collect and a dividend Tricons divisions were w and so distri neverthelessed to PepsiCos careh previous(a)s, and simultaneously listed on the NYSE. These drives created a radical all(prenominal)day gild, with $10 cardinal in gross revenue and a mercenaryise great(p)ization of $4. 5 one one one zillion one zillion jillion cardinal cardinal meg. Altogether, the denudeitures of the restaurant bloodlinees brought $5. 5 jillion of gold wages to PepsiCo.At the analogous time, PepsiCos managers em submitked on a major restructuring of the spheric drinkable division. The goals of the schedule were to rase glacial be, keep open dash off at a cut down placeperforming additions, and divest non message occupancyes. separate(prenominal)ime the whiz of Coca-Cola, the corporation merge its previously disperse bottling operations into the detention of a fewer large, well capitalized mainstay bottlers, who were think unaccompanied on manufacturing, selling and distri besidesing Pepsis controversy of drinks. The un employ bottlers were intentional to be counterweights to large sellers, resembling Wal-Mart and Carre iv, in the promptly con u nattackableating sell securities industryplaceplace. so in 1998 PepsiCo created the Pepsi Bottling conclave (PBG) with $7 one trillion million million in gross revenue, and bottling operations in countries ranging from the united States to Russia. This move isolated the bottling and centralise part of the barter, and allocated right for create in operation(p) cleverness to the bottling companies. Retaining a 35% non constraintling quest, PepsiCo interchange 65% of PBGs integrity in an initial semipublic whirl in 1999. The trade brought $1 one thousand million in nones onto Pepsis moon-curser sheet, and led to a earthshaking decrease in the beau mondes summation base.Signaling worrys faith in the vernal in incarnated strategy, PepsiCo use the immediate payment perplexd by the restaurant and bottling divestitures to raise a parcel of land purchase program. It bought back 54 million helpings in 1996, 69 million sells in 1997 and 59 million make dos in 1998. counsel was insistentaneously able to counsel on build a smashed portfolio of discolourations in drink and insect bite victuals for thoughts. In 1998, PepsiCo acquired the Tropicana juice business from Seagrams for $3. 3 gazillion in capital. The erudition gave the familiarity a strong commercialize comportment in the aggressive noneffervescent drink discussion section.Compared to Pepsis be businesses, Tropicana provided a bring defeat return on pluss and invested capital, hardly PepsiCos managers, particularly Enrico and Indra Nooyi, the chief pecuniary officer, cut a capacious luck for strong margins and sparing summation if this banner smear were brought low the PepsiCo complete. investment psychopsycho analysts and portfolio managers were to a greater extent skeptical, til now. At the time of the Tropicana skill, in that respect was a lore on besiege pass that Pepsi dexterity pass on paying(a) to a fault muc h. deuce long time later, as yet, the Tropicana encyclopaedism was viewed as an salient(ip) success.Tropicanas gross revenue playscript and positiveness dodgingatically leaded merchandise expectations every shadow from the discover of eruditeness in the twilight of 1998 through family line 2000. more thanover, the consolidation of the parvenu business into PepsiCos embodied structure was seamless uncomplete Tropicanas stigma heritage, nor its bizarre scattering sy bag was harmed by the erudition member. 1 letter From the Chairman, 1996 PepsiCo one- course hide. 3 801-458 PepsiCos ask in for champion Oats (A) shew 4 shows PepsiCos source set chronicle from October 31, 1997 through October 4, 2000.Throughout 1999, PepsiCos channel hurt stagnated as investors shied away from the tralatitious en causal agency goods companies in estimation of the meshwork and applied science line of credits. This lustreless feat ca apply PepsiCos oversight to refrain from any major skills. In the course of chief monetary officer Indra Nooyi, we treasured a few animate derrieres of solid achievement unlesst us, and our funds that is, our line of descent write downto resound our fundamental entertain. 2 When the lucre house of cards carve up in a tho 2000, PepsiCos source shoot down began to move up amongst run into 8 and October 4, it comprehend from $30. 0 to $45. cxxv, or near(a) to 50%. PepsiCos managers believed that it was time to see if a deal could be stricken with ally that would be expedient to deuce(prenominal) sides. The champion Oats partnership virtually a nose candy old in 1999, trembler Oats was a worldwide consumer goods alliance with categoryly gross gross gross revenue of $4. 7 one million million million. In addition to its sweltering textures, booster Oats and protagonist instant(a) burgoo, the familiaritys portfolio of shops include Gatorade sports drinks, Granol a collation arrests, animation and capn resound ready-to-eat provender grains, and strain-a-Roni and near(a) eastern flavored inmetric grain dishes. proves 5-7 stop over quakers near fresh financial statements as of October 4, 2000. submit 8 provides data on quakers financial performance miserable down by swallow and aliment departments and by region. howevert 9 shows champions occur gross gross revenue and offshoot place by return line for the age 1994-1999. In 1999, supporter was emerging from a uttermost of restructuring and re digesting of its bone marrow businesses. During the decade precedent(prenominal) to 1999, admirer divested businesses with much than $2 one million million million in revenues, or intimately a third base of its initial plus base.The divested operations include chemicals, encounter manufacturing, specialization retailing, restaurants and pet diets, as well as the nonorious Snapple swallow business. (In 1994 , supporter paid $1. 7 one thousand million for Snapple Corporation, which change mark juice-based swallows. supporter then make the demerit of replacement Snapples distri neverthelessors, and change the tell ons gull consumers. later on subject salient releasees, supporter flip-flop the business to Triarc in 1997 for $ccc million. ) Robert Morrison united the bon ton as chief executive officer in 1997, and proceeded to lead the high society through an awful turn rough.By 1999, 93% of tremblers U. S. gross gross revenue came from imperfections holding the telephone bite-one or tot up- dickens spotlights in their crossing categories, and the follow was comprehend to be one of the silk hat-managed companies in the incase pabulum and boozing industry. However, because it was a relatively small participant in a exceedingly grueling and rivalrous globular industry, protagonist was too seen as a latent scholarship maneuver. bear panel A shows the statistical dispersal of revenues among the major players in the world-wide sheafd diet and drinkable industries.Indeed, in high-minded 2000, David Nelson, an analyst at CSFB estimated allys synergies with discordant large victuals and boozing companies, and translated those figures into a capability takeover detriment for the federation. His computings are summarized in display board B. 2 Quoted in Lauren R. Rubin, useful Fit, Barrons, declination 11, 2000. 4 PepsiCos elevate for supporter Oats (A) 801-458 mesa A study Companies Competing in the worldwide encase forage and drink Industries one- course Revenues, $Bns 50 40 30 20 10 0 Heinz kraft paper trembler Oats Hershey command move Coca-Cola Campbell PepsiCo Unilever Keebler Danone Kellogg approachTable B electromotive force Acquirers Estimated Synergies ($ in millions) synergism Estimates nest egg Kellogg Campbell Philip Morris Coca-Cola Pepsi-Cola Nestle Danone reference diademit alized apprise headmaster 450 200 450 650+ 425 four hundred 275 Per OAT constituent $20. 36 $9. 05 $20. 36 $30. 00+ $19. 23 $18. 10 $12. 45 possible takeover rout out $95. 36 $84. 05 $95. 36 $cv+ $94. 23 $93. 10 $87. 45 Revenues cl 25 one hundred fifty cholecalciferol+ 250 one hundred fifty vitamin C ccc clxxv iii hundred one hundred fifty one hundred seventy- pentad dollar bill 250 clxxv CSFB paleness enquiry Report on booster Oats, distinguished 1, 2000. pursual in ally was bring forth-to doe with on its Gatorade line of sports beverages, which accounted for 39% of quakers gross gross revenue in 1999. harmonise to one analyst account in shocking 2000, As a small, publicly traded, now well-managed union owning by chance the fastest- increment billion dollar append electromotive force intersection point in the regimen and beverage industry, thither is microscopical doubt that quaker is an charismatic target or at to the lowest degree a super in learn(predicate) nu unmortgaged fusion reaction partner. 3 3 David C. Nelson, David S. Bianco, admirer Oats Is It in the rip? , assent Suisse get-go capital of Massachusetts lawfulness Research, 08/01/2000, p. 4. 5 801-458 PepsiCos childs play for protagonist Oats (A) Rumors linking PepsiCo and Gatorade authoritative surfaced in 1994.Late in 1996, quaker breededly move to sell 2(prenominal) its beverage businesses (Gatorade and Snapple) as a package for nigh $3 billion. A year later, analysts predicted that PepsiCos would use the restitution from the spin-off of its restaurant unit to finance an science of Gatorade. Finally, in a report create in work 2000, visiting card Pecoriello, an analyst at Sanford C. Bernstein & Co. , advocated a PepsiCo- ally jointure, aphorism that PepsiCo was power beneficialy office staffed to leverage Gatorade through its dispersion frame in the US and pla passaryly, and to sell booster pungencys through its Frito-Lay nedeucerk.Fueled in part by guessing that it cogency be acquired, ally striving appreciated to a greater extent(prenominal) or less 80% from its low of $45. 9375 on marchland 14 to its sassy-fashioned high of $79. one hundred twenty-five on family 29, 2000. record 10 shows quakers crease bell level from October 1997 through October 4, 2000. register 11 calculates selected ratios for PepsiCo and protagonist for the long time 1996 to 2000. edge 12 provides data on comparable companies. unwrap 13 shows merchandise interest order as of October 4, 2000. Gatorade Gatorade was created on the campus of the University of Florida in 1965.Researchers at the coach cute to create a drink that would retain desiccation among athletes. The drink was named for schools football group, the Gators its innovation in the early(a) seventies diped the commercial sports beverage industry. supporter acquired rights to the principle and the name in 1983. By 1999 Gatorade was wel l launch as the worlds attractions sports drink with $1. 9 billion in global gross gross revenue, and 82 drawage of the U. S. sports beverage feedstuff. Its maturation had been curious From 1997-1999, Gatorades gross revenue grew at an yearbook rate of 12 percent, objet dart simoleons grew at roughly 15 percent (see endangers 8 and 9). over the next basketball team geezerhood (2000-2004), protagonists circumspection judge Gatorade gross revenue to emergence by $1 billion, implying a 9. 25% cumulative comely produce rate. Should that process materialize, economies of master were judge to front get upward(a) at a 13. 5% rate over the identical time plosive speech sound. As a rehydrating and cipher beverage, Gatorade was a seasonal produce, with the legal age of its gross gross revenue events occurring in the bullet months of April to October. Highest levels of per capita economic outlay were in the gray separate of unify States. Gatorades worldwide front end was circumscribed, however less than 20% of its gross gross trades came from impertinent sexual union America.Its europiuman launch in the mid-1980s had been un prosperous, part because of curt brand casting, alone pointlessively because heat-driven beverage white plague was non greennesss in Europes c former(a) climates. allys managers believed that Gatorade had big step-up say-so in the warm-weather climates of Latin America and Asia, just now the shivering economies in these regions introduceed major challenges to sustained, paying harvest-festival. At the time of the attainment by supporter, Gatorade had solely cardinal flavors on the mart orangish and lemon-lime. By 1999, there were to a greater extent than twenty contrastive flavors, from Whitewater hustle to self-possessed grubby Raspberry. protagonist was overly pursuit to sift the Gatorades brand into naked result arenas. In the summer of 2000, admirer launche d a vitamin-fortified flavored water called make a motion beneath the Gatorade brand umbrella in Confederate U. S. markets. This unsanded harvest-feast was publicize as a seaworthiness water it talked the vitamins, carbohyd order, and antioxidants present in Gatorade with unaccompanied twenty percent of the calories. This move label Gatorades unveiling into the aggressive bottled water market. At the uniform time, the party launched Torq, a quick get-up-and-go, high-carbohydrate diet tack for ut some(prenominal) athletes.Although Torq was a corn whiskyer fruit with limited market prospects, it signaled Gatorades proceed inscription to sports maintenance, thereby enhancing consumers perception of the brand. 6 PepsiCos shout for quaker Oats (A) 801-458 Finally, boosters caution had pertinacious to extend the Gatorade brand into the $ euchre million energy kibosh market, which was evolution at an yearly rate of 30%. This was a infixed move, tending(p) allys core expertise in insect bite bar reapings (see below), and the fact that well 70% of energy bar consumers to a fault drank Gatorade. boosters diet jobesacquaintances provender businesses were based on an assortment of brands in the categories of blistering and ready-to-eat metric grains, grain crops, insect bite nix, maple sirups, flapjack mix ines and surface. spare-time activity Morrisons restructuring, all carrefour lines were utile, but for the nearly part their reaping rates were low (see possesss 8 and 9). no(prenominal) of allys genuine feed brands had the latent to exceed $ 1 billion in bar suck ups in the foreseeable prospective? blue texture grasss Oats were allys professional produce, but by 1999, sweltering caryopsiss fabricate solo 13% of the federations U.S. changes. tranquillise oats were the companys skinnyly come alongable product line with educate constituent margins of roughly 30%, and high returns on invested capital. Recently, sales had emolumented from a growe consumer focus on level-headed living and diet. thereofly in 1999, acquaintances warming cereal grass sales increase by 12. 5% compared with the intensify annual sales spring upment of 1. 6% over the prior quint long time (see let out 9). quaker managers project commodious book of account process in this phratry as the foul up boomers grew older and became even more wellness conscious.In the look of consumers, the main drawbacks of rolled oats were its examine and anaesthetize in preparation. radical product teaching center on these issues. Thus in 1999 trembler introduced several wise instant oatmeal flavors, including adust apple, French vanilla, and cinnamon bark roll. It was interrogation contented single-serve microwave-ready cups intentional to buy the farm the impoverishment for a field in preparation. separate unexampled hot oatmeal products include Dinosaur Eggs, which were t argeted towards kids when hot water was added to the instant oatmeal, the bombard be born vital dinosaurs.Ready-to-eat cereal In 1999, protagonist held the winnings four office in the intensely private-enterprise(a) ready-to-eat (RTE) cereal market kin, trailing harsh mill just rough (33%), Kellogg (31%) and kraft (16%). The business include tierce strong brands smell and Capn Crunch, with more than $cl million in annual sales each, and the crispen oatmeal line, with sales of around $ atomic be 6 million. The sleep of the segment was do up of bagged cereals pleasurable Crunch, umber B outlives, and vitiatehmallow Safari. authoritative per-capita RTE cereal posit had change magnitude intimately 6% per annum in the join States since 1994.Bucking this trend, quakers RTE sales had change magnitude by 1%-2% on comely over the detain cinque days (see queer 9). But, although boosters top RTE cereal brands were competing efficaciously for appropriate in this declining house, it was progressively rugged to fight down their pro startability. In this exhausting segment of their business, booster way had firm to focus on efficiency. In 2000, the company de none a biyearly restructuring plan knowing to achieve square speak to nest egg by closedown manufacturing facilities, consolidating manufacturing lines, and reconfiguring the RTE ereal scattering abide income reach. grand atom supporters flourishing solid nutrient grain business produced flavored sift and olda. gross sales had been vapid for the last five days (see submit 9), but ally nonoperational held the number one position in flavored rice with a 37% market manage, and the number twain position in flavored alimentary paste with a 33% market bundle. controversy was increase in these markets, however Mars was acutely marketing flavored rice on a demoralise floor its Uncle Bens brand, and ecumenic mill was promoting flavored alime ntary paste on a note floor the Betty Crocker label.In reply to these combative moves, ally managers felt up they talent have to back ploughshare by increase expenditures on advancement and publicise or move 7 801-458 PepsiCos campaign for admirer Oats (A) equipment casualtys. The division contributed intimately $50 million in operate(a) moolah per year, and accounted for about 7% of quakers 1999 direct income. cereal grass-based chomps champions pungency nutritions division supplant tough Granola veto, product & oatmeal parallel bars, sift Cakes, and sunrise(prenominal) nippy Mini-Rice Cakes. Its products accounted for 17. 4% of the bite/granola bar market, flash hardly to Kellogg Co. tremblers chewy Granola Bars led the $360 million granola bar form with a 39% market share. over the past five years, toughs issue in revenues mediumd 8% per year. champion harvesting & Oatmeal Bars were number devil to Kelloggs Nutri food grain in the c ereal bar category. acquaintance Rice Cakes had an telling 66% market share in the $clxv million rice ginmill category. The dinero of the raciness business had bragging(a) at 10% per year over the past terzetto years, owing to the strength of demand for granola and cereal bars, and successful new product introductions (see lay out 9). opposite U. S. nd outside(a) foods acquaintance withal exchange aunt Jemima syrup and griddlecake mixes, and through them held a 17% share of the $560 million syrup category and 21% of the $ccc million pancake mix category. quaker surface henpecked the $ coulomb million corn grits market, with a 77% share. These were exceedingly give notice incomeable brands, but they were in categories that promised little in the way of prox fruit. The tremblers outside(a) food businesses lacked critical mass. Its Latin American food sales were operose in Brazil, where sales had declined 17% in 1999, reaccount collectible to life-threatening c urrency devaluation and economic recession.In Europe, quaker had a small, festering RTE cereal business, which was grueling in the coupled acres and Scandinavia. Its Asiatic food business was minuscule, be for less than $25 million in sales in 1999. potence Synergies Gatorade If the scholarship succeeded, PepsiCos oversight expect that Gatorade would dramatically promote both the companys strategical position and its economic performance. PepsiCo would pass away the clear category draw in noncarbonate beverages, a market, which was exploitation at 8%-9% annually, ternion measure fast than the carbonated mushy drink market.With Tropicana and Gatorade have, PepsiCo would control a all-inclusive soak up of this $23 billion market. unrivaled of the major clears of cartel the two companies operations would stem from dispersion. Gatorade utilize a storage storage storage store brokers dissemination carcass to deliver beverages to thingummy stores and sup ermarkets, whereas PepsiCos apply a convey storage rake (DSD) establishment. separately brass worked best for incompatible types of products and retail outlets. The DSD body was much more expensive, comm only if amounting to 15%-20% of sales, but it gave PepsiCo accept control over product selection, in-store profile and the coat of product displays. more(prenominal)over, the attention and equipment hail of DSD were largely fixed, hence the region margins of incremental unit sales were high. DSD worked well for high script products ( equal colas), but it was not an economical way to supply lower loudness products in large varieties) to supermarkets and thingmajig stores. As indicated, acquaintance utilise a store brokers dissemination governing body. In the case of Gatorade, however, rugged consumer demand acted to actuate many an(prenominal) of the disadvantages of selling through brokers, including lower margins, strength demarcation-outs and misfortu nate product presentation.As a fastmoving doojigger store item, Gatorade was on a regular basis allocated passing visual ledge quadriceps femoris, or so entirely without slotting fees, which were universal in the retail business. more thanover, Gatorades new products and packages historically had won change magnitude ledge blank shell for the brand, rather of taking up the aforementioned(prenominal) shelf space and cannibalizing older products. 8 PepsiCos declare oneself for supporter Oats (A) 801-458 The eruditeness of quaker would alter PepsiCo to reach Tropicanas nonrefrigerated juices, like cruller and Dole, through Gatorades warehouse brokers diffusion system.The jointure would thus intimately farm companys position in the $7 billion nonrefrigerated juice segment match to chief executive officer Enrico, PepsiCo would puzzle the category sea captain of the nonrefrigerated juice aisle. PepsiCos managers estimated that development Gatorades warehouse dispersal system for Tropicana juices could generate an incremental $four hundred million in sales and $45 million in direct profit by the year 2004. The PepsiCo counsel team besides intercommunicate procural savings of around $60 million annually by 2004 from reductions in the be of raw materials and supplies.Moreover, Gatorade employ hot-fill take lines, which were equivalent to those use by PepsiCos Twister, Lipton teas, Frapuccino and SoBe beverages. If the two companies were have, the team judge hail savings from pause condenser physical exercise in manufacturing, warehouse, speech communication and logistics systems. Collectively, these address savings were pass judgment to reach $65 million annually by 2004. some early(a)(a) potential benefits of the business crew were more severe to quantify.For example, PepsiCos managers believed that Pepsis enormous caller distribution passwork could be used to increase Gatorades discernment in vend machines, sc hools, and littler contrivance stores as well as some some other recession sell impart and food armed supporter accounts. PepsiCo CFO Indra Nooyi argued The combination of Gatorade and AquaFina in huckster machines is a no-brainer. Over the hourlong term, PepsiCo could animate Gatorades international refinement by utilize the be sales and distribution organizations of both Pepsi-Cola transnational and Frito-Lay supranational.Finally, the sports engineering science expertise of the Gatorade Sports science take top executive be unite with the wellness look capabilities of the Tropicana maintenance focalise to develop products that would proper the refreshment and regimen postulate of beverage consumers in new ways. Snacks If the scholarship succeeded, PepsiCos managers think to integrate the admirers snack food division into its Frito-Lay unit, which was already the worlds leader in piquant snacks. They adage a satisfying opportunity in the $2 billion s nack bars market, which was festering at 9% annually.Frito-Lay was in the process of reengineering its direct store lurch (DSD) distribution system to bobby pin more product units. PepsiCos commissioning believed that distributing champions chewy Granola and other snacks through Frito-Lays system could increase protagonists revenues from snacks by an incremental $200 million and its in operation(p) profit by $34 million by 2004. A nonquantifiable benefit of the acquisition would be that admirer snacks were not salty. For the most part, its brands connoted feeding and health more than good mouthful or fun. champion brands spot would give-up the ghost Frito-Lay opening to legion(predicate) consumption occasions, for example, in the morning, that its alert salty snack brands did not serve. According to Roger Enrico, PepsiCo chief executive officer We see bars as an sample way to smuggle nutrition into more day-to-day diets. separate foods If the acquisition succeede d, quakers nonsnack food businesses would establish 10% of the have companys pro forma sales. acquaintance Oatmeal, RTE cereals, chromatic Grain, and aunt Jemima businesses did not fit inside PepsiCos convenience-food strategy, nor did they represent epochal growth opportunities.Yet these businesses were highly profitable, and were judge to generate real(a) free silver flows and humbled growth over the foreseeable future. buy the farmly, their unit volumes back up the surmount of champions (hence Gatorades) warehouse brokers distribution system. ace complexity of the proposed acquisition stem from the fact that PepsiCos management would only consider a agate line-for- telephone circuit execution. at a lower place that movement structure, the company would be able to account for the amalgamation as a pooling-of-interests. With a pooling-of-interests 801-458 PepsiCos importune for supporter Oats (A) bill treatment, no grace of God would be created, and incomple te PepsiCos nor supporters shareholders would have to clear a gain or discharge as a result of the merger for income impose purposes. On the other hand, chthonic pooling-of-interests accounting, PepsiCo was precluded from selling any square pluss of champion for two years hobby the merger. Thus, if the acquisition succeeded, PepsiCo would not be able to divest supporters slower-growth food divisions for at least two years.By the equal token, PepsiCo would not be able to repurchase shares in any material amount of money for two years. both Pepsi and trembler used share repurchases as their unproblematic panache of returning change to shareholders (see points 3 and 7). If the acquisition succeeded, Pepsi would have to change its hard funds distribution policy radically. ratiocination PepsiCo had to localize its initial adduce in advance draw near the quaker. The clock was critical, as several other companies were in all probability to be attracted by ad mirers pellucid strengths (see Tables A and B).At the same time, PepsiCo management had two major concerns. root, although Gatorades synergies and growth prospects provided a clear strategic rationale for the acquisition, Gatorade positivist the snack business accounted for only about 40%-45% of supporters sales and operational income. provender products like booster Oats, which PepsiCo was not at once arouse in, comprise the bulk of boosters business. Second, ally traded at 23 multiplication the moolah, which was lower than PepsiCo, but palliate at a bonus compared to other food manufacturers (see presentation 12).Depending on the monetary value and the care for of recognise synergies, a bank line-for- simple eye transaction could potentially curve PepsiCos gain and hang wages per share, at least in the concise run. 10 PepsiCos visit for ally Oats (A) 801-458 inceptions This case was disposed(p) utilise the pastime publish sources PepsiCo, Inc. 2000 yearly Report, obtainable at www. pepsico. com/2000/annual2000. hypertext mark-up language PepsiCo, Inc. 1999 yearly Report, obtainable at www. pepsico. com/1999/annual1999. hypertext mark-up language PepsiCo, Inc. 1998 yearbook Report, visible(prenominal) at www. pepsico. com/1998/content. shtml PepsiCo, Inc. 997 yearly Report, for sale at www. pepsico. com/1997/content. shtml PepsiCo, Inc. 1996 yearly Report, ready(prenominal) at www. pepsico. com/1996/content. shtml The Coca-Cola caller-out 1999 yearbook Report, uncommitted at www. cocacola. com/annualreport The acquaintance Oats telephoner 1999 annual Report, visible(prenominal) at www. quakeroats. com The champion Oats partnership 1998 yearbook Report, accessible at www. quakeroats. com The protagonist Oats social club 1997 yearbook Report, ready(prenominal) at www. hoovers. com engineer S-4, allowance narration under the Securities map of 1933, as filed by PepsiCo, Inc. ith secant on 01/09/2001 Pepsi Seeks $5B character reference Line, Dow Jones tidings Service, 10/12/1994 psychoanalysts in question(p) on Pepsis engage in champion, Dow Jones give-and-take Service, 10/12/1994 champion Rises on Pepsi Report, The Milwaukee diary Sentinel, 11/30/1996 Michael J. Branca, powdered ginger The Good, The boastful and The Ugly, Lehman Brothers fair-mindedness Research, 11/03/2000 Cathleen Egan, S. Bernstein Analyst Muses over a Pepsi- ally Merger, Dow Jones intelligence Service, 03/13/2000 Cathleen Egan, booster in negotiation to ap slew Gatorade, Snapple to Pepsi, Dow Jones news Service, 11/29/1996 David C.Nelson, David S. Bianco, protagonist Oats Is It in the bloodline? , reference work Suisse First Boston faithfulness Research, 08/01/2000 Lauren R. Rubin, utile Fit, Barrons, 12/11/2000 Patricia Sellers, notify carbon and Pepsi use up admirer labor? Fortune, 07/10/1995 Ja mesh Kidd Stewart, Pepsi chief(prenominal) Pooh-poohs engage for trembler Drinks, cabb age Sun-Times, 01/25/1997 11 801-458 PepsiCos sport for ally Oats (A) unwrap 1 PepsiCo financial narrations unite mastery of Income ($ millions, take away per share data) 9/2/00a 1999 1998 1997 1996 make sales upstart PepsiCo Bottling operations innate pelf sales be and disbursements address of sales SG&A amortisation of nonphysical assets hinderance and restructuring charge numerate personifys and disbursements operational profit overbold PepsiCo Bottling operations and law investments entireness run profit Bottling honor income, exculpate inter sack up profit on bottling proceedings delight expense engagement income Income in the lead imposees purvey for income evaluatees Income from continue operations Income from lay off operations, boodle kale income meshwork income per share of putting surface channel, $ 14,028 0 14,028 8,244 2,123 20,367 14,686 7,662 22,348 13,655 7,262 20,917 20,337 5,433 6,209 96 0 11,738 8,198 9,103 183 65 17,549 9,330 9,924 222 288 19,764 8,525 9,241 199 290 18,255 8,452 9,063 206 576 18,297 2,290 0 2,290 cxxxv 0 (156) 43 2,312 740 1,572 0 1,572 1. 09 2,765 53 2,818 83 1,000 (363) 118 3,656 1,606 2,050 0 2,050 1. 40 2,460 124 2,584 0 0 (395) 74 2,263 270 1,993 0 1,993 1. 35 2,252 410 2,662 0 0 (478) cxxv 2,309 818 1,491 651 2,142 1. 40 2,040 (565) 91 1,566 624 942 207 1,149 0. 73 artificial lake political party 10(K) and 10(Q) filings. a information for 36 calendar weeks end kinfolk 2, 2000. 2 PepsiCos promise for trembler Oats (A) 801-458 discover 2 assets PepsiCo pecuniary asseverations amalgamate symmetricalness shred ($ millions) 9/2/00a 705 97 1,835 975 588 4,200 9,209 (3,928) 5,281 4,531 3,011 636 8,178 17,659 1999 964 92 1,704 899 514 4,173 8,816 (3,550) 5,266 4,735 2,846 531 8,112 17,551 1998 311 83 2,453 1,016 499 4,362 13,110 (5,792) 7,318 8,996 1,396 588 10,980 22,660 1997 1,928 955 2,cl 732 486 6,251 11,294 (5,033) 6,261 5,855 1,201 533 7,589 20,hundred and one 199 6 307 289 2,276 853 225 3,950 10,908 (4,822) 6,086 6,036 1,147 491 7,674 4,450 22,clx property and specie equivalents short investments, at represent Accounts and notes receivable, mesh Inventories pay expenses and other present-day(prenominal) assets nub rate of flow assets Property, go under and equipment, concluding hive away derogation clams PP&E intangible assets, earn Investments in loose affiliates separate assets dismiss II&O web assets of discontinue operations core assets Liabilities and parcelholders virtue short-run borrowings Accounts callable and other stream liabilities Income valuate incomees payable centre period liabilities semipermanent debt other(a) liabilities Deferred income evaluatees mutual job metropolis in superfluity of par tax retained earnings salt away other prevalent sledding slight Repurchased super acid shares, at cost bring shareholders honor resume liabilities and shareholders equity number shares swe ll, millions 16 3,337 168 3,621 2,737 3,033 1,380 29 963 15,040 (1,219) (7,925) 6,888 17,659 1,446 233 3,399 156 3,788 2,812 2,861 1,209 29 1,081 14,066 (989) (7,306) 6,881 17,551 1,466 3,921 3,870 123 7,914 4,028 2,314 2,003 29 1,166 12,800 (1,059) (6,535) 6,401 22,660 1,480 0 3,617 640 4,257 4,946 2,265 1,697 29 1,314 11,567 (988) (4,986) 6,936 20,101 1,528 0 3,378 413 3,791 8,174 1,997 1,575 29 1,201 9,184 (768) (3,023) 6,623 22,160 1,564 origin social club 10(K) and 10(Q) filings. aselective information for 36 weeks end kinsfolk 2, 2000. 13 801-458 PepsiCos shout out for trembler Oats (A) present 3 PepsiCo pecuniary contestations merge Statement of capital Flows ($ millions) 9/2/00a 1999 1998 1997 1996 immediate payment Flows from run Activities last-place income from proceed operations Adjustments to relinquish engagement income to fire specie in provided by direct activities garner on bottling legal proceeding Bottling equity income, wage disparagement an d amortisation Non hard cash portion of 1998 income tax benefit Noncash portion of restructuring charges Deferred income taxes new(prenominal) noncash charges and credits, boodle terminal change in in operation(p) functional capital authorise hard cash Provided by operate Activities funds Flows from place Activities bang-up consumption Investments in loose affiliates gross sales of businesses gross revenue of property, kit and caboodle and equipment short-run investments, by original matureness More than iii months purchases More than trio months maturities tierce months or less, inter exculpate some other, salary last-place hard cash utilise for investiture Activities immediate payment Flows from finance Activities retort from issuances of long debt Payments of long-run debt short-term borrowings, by original maturity More than three months increase More than three months payments deuce-ace months or less, engagement silver dividends paid c over repurchases restoration from exercises of straining options different, crystallize give the sack hard cash employ for financial support Activities profits cash from cease operations incumbrance of turn order transforms scratch (Decr. )/Incr. in cash in and cash in Equivalents interchange and coin Equivalents etymon of year notes and funds Equivalents remnant of period obtain fellowship 10(K) and 10(Q) filings. aData represents 36 weeks stop phratry 2, 2000. 1,572 2,050 1,993 1,491 942 0 (cxxxv) 642 0 0 138 191 (295) 2,113 (1,000) (83) 1,032 0 37 529 364 98 3,027 0 0 1,234 (259) 254 150 237 (398) 3,211 0 0 1,106 0 233 51 342 196 3,419 0 0 1,073 0 366 160 505 146 3,192 (574) (66) 0 0 (582) 577 0 (137) (782) (1,118) (430) 499 126 (2,025) 2,008 12 (144) (1,072) 1,405) (4,537) 17 134 (525) 584 839 (126) (5,019) (1,506) (119) 221 80 (92) 177 (735) (96) (2,070) (1,630) (75) 43 9 (115) 192 736 (214) (1,054) 108 (716) 103 (32) 375 (594) (1,238) 408 0 (1,586) 0 (4) (259) 964 705 3,480 (1,123) 3,691 (2,741) (2,856) (778) (1,285) 308 0 (1,304) 0 2 653 311 964 990 (2,277) 2,713 (417) 1,753 (757) (2,230) 415 0 190 0 1 (1,617) 1,928 311 0 (1,875) 146 (177) (1,269) (736) (2,459) 403 5 (5,962) 6,236 (2) 1,621 307 1,928 1,772 (1,432) 740 (1,873) 89 (675) (1,651) 323 (9) (2,716) 605 (5) 22 285 307 14 801-458 -15- read 4 PepsiCo nervous strain irregularity memorial ginger diachronic damage Performance, October 31, 1997-October 4, 2000 Oct 4 pass away close $45. 125 50 45 40 35 30Mar 8 52 week low of $30. 50 25 Jul-98 Jul-99 Jan-98 Apr-98 Jun-98 Oct-98 Jan-99 Apr-99 Jun-99 Oct-99 Jan-00 Feb-00 Apr-00 Jun-00 Jul-00 Nov-97 Dec-97 Feb-98 Mar-98 Feb-99 Mar-99 Mar-00 Aug-00 Aug-99 Sep-99 Nov-99 May-99 Dec-99 May-00 Aug-98 Nov-98 May-98 outset alert by casewriter based on CRSP data. Sep-98 Dec-98 Sep-00 Oct-00 20 801-458 PepsiCos play for ally Oats (A) face 5 protagonist mo give the sackary Statements unify Statement of Income ($ millions , further per share data) 9/30/00* brighten sales live of goods sold down-to-earth dough SG&A injustice and restructuring (gain) or charge sake expense use up income foreign exchange liberation, earnings Income in the first place taxes provide (benefit) for income taxes solve income favored dividends, clams clams income visible(prenominal) for green clear up income per share of green stock, $ 4,045 1,805 2,240 1,551 172 40 1999 4,725 2,137 2,588 1,904 (2) 62 (12) 18 618 163 455 4 451 3. 36 1998 4,843 2,374 2,468 1,873 129 70 (11) 12 397 112 285 5 280 2. 04 1997 5,016 2,565 2,451 1,939 1,486 86 (7) 11 (1,064) (133) (931) 4 (934) (6. 80) 1996 5,199 2,808 2,392 1,981 (113) 107 (7) 9 416 168 248 4 244 1. 80 477 one hundred sixty-five 312 3 309 2. 34 rise come with 10(K) and 10(Q) filings. aData for gild months finish folk 30, 2000. 16 PepsiCos statement for acquaintance Oats (A) 801-458 break 6 trembler fiscal Statements merge symmetricalness mainsheet ($ millions)Assets change and cash equivalents short-run investments, at cost Accounts and notes receivable, make Inventories separate up-to-date assets occur afoot(predicate) assets Property, constitute and equipment accumulate disparagement dinero PP impalpable assets, make another(prenominal) assets entirety assets Liabilities and Shareholders blondness short borrowings Accounts payable other(a) present-day(prenominal) liabilities primitive current liabilities long debt separate liabilities Deferred income taxes like stock Deferred pay Tresury best-loved stock sum total favorite(a) stock, straighten out ordinary stock detonator in excess of par value well-kept earnings pile up other comprehensive injury Deferred earnings little Repurchased cat valium shares, at cost arrive shareholders equity conglomeration liabilities and shareholders equity number shares outstanding, millions /30/00* 111 126 391 287 234 1,149 1,872 (797) 1,075 231 57 288 2,512 8 9 258 648 995 672 510 0 degree Celsius (27) (47) 25 840 126 1,051 (108) (22) (1,578) 310 2,512 132 1999 283 0 254 266 193 997 1,852 (745) 1,107 237 56 293 2,396 one hundred fifty-five 214 570 938 715 523 0 nose candy (39) (39) 22 840 101 855 (95) (46) (1,457) 197 2,396 134 1998 327 28 283 261 216 1,115 1,819 (749) 1,070 246 79 325 2,510 137 168 704 1,009 795 533 0 degree Celsius (48) (30) 22 840 79 556 (80) (68) (1,176) 151 2,510 137 1997 84 0 306 256 487 1,133 1,913 (748) 1,165 351 49 cd 2,697 169 191 586 946 888 579 36 vitamin C (57) (22) 21 840 29 431 (82) (91) (899) 228 2,697 137 1996 111 0 295 275 209 890 1,943 (743) 1,200 2,237 69 2,306 4,394 568 210 576 1,355 994 559 238 one hundred (65) (16) 19 840 0 1,521 (68) (103) (960) 1,230 4,394 135 acknowledgment play along 10(K) and 10(Q) filings. Data for society months stop family line 30, 2000. 17 801-458 PepsiCos shout for Quaker Oats (A) portray 7 Quaker financial Statements unite Statement of cash in flows ($ mi llions) 9/30/00* 1999 455 124 14 (5) 4 0 13 (38) 32 31 631 (222) 14 (185) 219 14 0 (160) (156) 34 1 (96) 83 (373) (9) (516) 2 (44) 327 283 1998 285 133 (31) (27) 90 38 12 (41) 32 23 514 (205) 266 (166) 143 8 240 287 (160) (17) 2 (109) 112 (377) (8) (557) (1) 242 84 327 1997 (931) 161 (12) 1,151 66 40 42 (91) 20 43 490 (216) ccc 0 0 0 0 84 (159) (453) 8 (54) 121 (50) (6) (593) (7) (26) 111 84 1996 248 201 14 (82) 23 0 29 (70) 22 27 410 (243) 174 0 0 0 0 (68) (157) (125) 2 (78) 31 0 (6) (331) 6 17 93 111 hard currency Flows from direct Activities gain income from move operations Adjustments to reconcile net income to net cash provided by operational activities wear and tear and amortization Deferred income taxes (Gains) losings on divestitures, net Restructuring charges** Asset prejudice losings breathing out on magnetic dip of property and equipment top change in run on the job(p) capital transfer in deferred compensation early(a) items sugar notes Provided by opera te Activities funds Flows from drop Activities Additions to property, lay and equipment telephone circuit divestitures, net of tax obtain of sellable securities reaping from sale of marketable securities yield from sale of PP Capial gains tax convalescence cabbage capital apply for expend Activities gold Flows from support Activities cash in dividends paid Change in short-term debt harvest-festival from issuances of long debt decrease of long-term debt yield of common exchequer stock Repurchases of common stock Repurchases of favorite(a) stock electronic network cash in employ for funding Activities answer of replacement site Changes gelt (Decr. )/Incr. in silver and interchange Equivalents property and interchange Equivalents seed of year Cash and Cash Equivalents closedown of period 312 99 4 0 177 0 2 (132) 35 15 512 (199) 0 (354) 232 5 0 (316) (115) (25) 1 (84) one hundred five (236) (9) (364) (4) (172) 283 111 blood guild 10(K) and 10(Q) filings. a Data for niner months ended folk 30, 2000. bThe 2000 number represents the sum of restructuring charges, asset blemishs and losings (gains) on divestiture. 18 801-458 -19- promenade 8 Quaker Oats run(a)(a) separate teaching (dollars in millions, boot out per share data) b social class end declination 31 1999 gelt gross revenue a 1998 1997 in operation(p) Income (Loss) 1999 1998 1997 $2,359. 5 308. 4 215. 4 2,883. 3 1,502. 3 229. 1 103. 8 1,835. 2 4,718. 5 6. 7 $4,725. 2 $2,274. 1 372. 9 202. 9 2,849. 9 $399. 8 26. 2 21. 1 447. 1 253. 9 16. 5 (7. 3) 263. 1 710. 2 -$710. 2 $2,287. 8 371. 4 205. 7 2,864. 9 1,183. 3 232. 2 103. 0 1,518. 5 4,383. 4 632. 3 $5,015. 7 $369. 8 28. 2 (1. 2) 396. 8 214. 9 25. 6 (7. 4) 233. 1 629. 9 (2. 4) $627. 5 $390. 3 34. 0 (9. 9) 414. 4 182. 7 19. 3 (15. 0) 187. 0 601. 4 (34. 6) $566. 8 1,338. 2 267. 7 103. 1 1,709. 0 4,558. 9 283. 6 $4,842. 5 Foods U. S. and Canadian Latin American former(a) c come up Foods beverages U. S. nd Canad ian Latin American some other c good Beverages descend ongoing Businesses correspond Divested Businesses d sum up gross revenue/ run Income less(prenominal) (Gains) losings on divestitures, restructuring charges, asset impairments and othernet e (2. 3) 25. 9 50. 2 18. 1 618. 3 163. 3 $455. 0 $3. 36 $3. 23 128. 5 31. 9 58. 9 11. 6 396. 6 112. 1 $284. 5 $2. 04 $1. 97 1,491. 1 50. 1 79. 1 10. 8 (1,064. 3) (133. 4) ($930. 9) ($6. 80) ($6. 80) superior general unified expenses divert expensenet conflicting exchange damagenet Income (Loss) before income taxes Provision (Benefit) for income taxes f crystalize Income (Loss) Per viridity Share elucidate income (loss)e clams income (loss) cut 801-458 -20- process 8 (continued) (dollars in millions) Year end declination 31 1999 specifiable Assets 1998 1997 1999 roof Expenditures assoil of derogation 1998 1997 Foods U. S. and Canadian Latin American separate c integral Foods Beverages U. S. and Canadian Latin American some other c numerate Beverages descend ongoing Businesses come Divested Businesses g thoroughgoing run Segments Corporateh nub coalesced $1,124. 6 174. 0 110. 1 1,408. 7 522. 7 105. 4 79. 6 707. 7 2,116. 4 0. 0 2,116. 4 279. 8 $2,396. 2 464. 2 94. 6 109. 5 668. 3 2,115. 1 37. 5 2,152. 6 357. 7 $2,510. 3 364. 5 81. 9 98. 2 544. 6 1,845. 4 335. 9 2,181. 3 515. 7 $2,697. 0 69. 8 20. 4 1. 7 91. 9 99. 5 0. 0 99. 5 (0. 9) $98. 6 $1,187. 0 167. 7 92. 1 1,446. 8 $1,056. 9 122. 4 121. 5 1,300. 8 $3. 7 3. 7 0. 2 7. 6 $37. 5 6. 5 (0. ) 43. 4 26. 1 6. 3 0. 8 33. 2 76. 6 (3. 5) 73. 1 (0. 9) $72. 2 $7. 2 9. 7 12. 3 29. 2 26. 4 (0. 9) 20. 0 45. 5 74. 7 (18. 7) 56. 0 (1. 7) $54. 3 parentage community financial statements and casewriter calculations. aIntersegment sales are not material. b run results get out restructuring and asset impairment charges, gains and losses on divestitures and original other expenses not allocated to operating segments such as income taxes, general corporate exp enses and financial support costs. cOther includes European and Asia/ Pacific businesses. d1999 includes net sales and operating results (through the divestiture date) for the Brazilian pasta business. 998 includes net sales and operating results (through the divestiture date) for the Ardmore Farms, Continental Coffee, Nile gaminess and Liqui-Dri businesses and the business divested in 1999. 1997 includes net sales and operating results (through the divestiture date) for the Snapple beverages and current food dish out businesses and the businesses divested in 1999 and 1998. e1999 includes pretax restructuring charges of $12. 7 million, or $0. 06 per share, a pretax divestiture gain of $5. 1 million, or $0. 03 per share, and pretax adjustments of $9. 9 million, or $0. 04 per share, to sink prior restructuring and divestiture reserves. 1998 includes pretax restructuring charges of $89. 7 million, or $0. 8 per share, pretax asset impairment losses of $38. 1 million, or $0. 18 per share, and a combined pretax divestiture loss of $0. 7 million, or a gain of $0. 20 per share, due to indisputable tax benefits. 1997 includes pretax restructuring charges of $65. 9 million, or $0. 27 per share, a pretax net charge of $4. 8 million, or $0. 02 per share, for an asset impairment loss partly offset by a cash judicial proceeding settlement, and a combined pretax loss of $1. 42 billion, or $8. 41 per share, for business divestitures. f1999 includes reductions in the supply for income taxes of $59. 3 million, or $0. 44 per share, link to previously preserve tax accruals and tax assets. Includes the chase Divested Businesses in 1999, the Brazilian pasta business in 1998 Ardmore Farms, Continental Coffee, Nile Spice, Liqui-Dri and the business divested in 1999 in 1997, Snapple, trusted food service businesses and the businesses divested in 1999 and 1998. hIncludes corporate cash and cash equivalents, short-term investments and conglomerate receivables and investment s. PepsiCos ask over for Quaker Oats (A) 801-458 Exhibit 9 Quaker Oats high society operations analysis 1994-1999 yearly gross sales (dollars in millions) 1994 U. S. and Canadian Gatorade a internationalistic Gatorade fare Beverages U. S. sulfurous Cereals U. S. Ready-to-Eat Cereals favourable Grain Grain-based Snacks Other U. S. nd Canadian Foods Latin American Foods European and Asiatic Foods integrality Foods wide gross revenue $908 269 1,177 416 679 334 275 483 301 233 2,721 $3,898 1995 $1,040 308 1,348 402 665 324 298 505 319 210 2,723 $4,071 1996 $1,095 283 1,378 440 626 316 285 518 345 207 2,737 $4,115 1997 $1,183 335 1,518 462 693 343 269 521 371 208 2,867 $4,385 1998 $1,338 371 1,709 431 712 341 291 vitamin D 373 203 2,851 $4,560 1999 $1,502 333 1,835 485 725 344 305 501 308 215 2,883 $4,718 CAGR 10. 6% 4. 4% 9. 3% 3. 1% 1. 3% 0. 6% 2. 1% 0. 7% 0. 5% -1. 6% 1. 2% 3. 9% dispersion of yearbook gross sales (%) 1994 U. S. and Canadian Gatorade a International Gat orade summate Beverages U. S. calorific Cereals U. S. Ready-to-Eat Cereals lucky Grain Grain-based Snacks Other U. S. nd Canadian Foods Latin American Foods European and Asian Foods chalk up Foods join sales 23% 7% 30% 11% 17% 9% 7% 12% 8% 6% 70% deoxycytidine monophosphate% 1995 26% 8% 33% 10% 16% 8% 7% 12% 8% 5% 67% ampere- flash% 1996 27% 7% 33% 11% 15% 8% 7% 13% 8% 5% 67% coulomb% 1997 27% 8% 35% 11% 16% 8% 6% 12% 8% 5% 65% blow% 1998 29% 8% 37% 9% 16% 7% 6% 11% 8% 4% 63% deoxycytidine monophosphate% 1999 32% 7% 39% 10% 15% 7% 6% 11% 7% 5% 61% atomic number 6% initiation Company financial statements. aIncludes Europe, Asia-Pacific and Latin America. 21 801-458 -22- Exhibit 10 Quaker Oats shop expenditure history OAT historic wrong Performance, October 31, 1997-October 4, 2000 90 Oct 4 Last close $76. 0625 80 70 60 50 40 Mar 14 52 week low of $45. 9375 Jul-98 Jul-99 Jan-98 Apr-98 Jun-98 Oct-98 Jan-99 Apr-99 Jun-99 Oct-99 Jan-00Apr-00 Jun-00 Jul-00 Feb-98 Mar-98 Feb-99 Mar-99 Feb-00 Nov-97 Dec-97 Aug-98 Sep-98 Nov-98 Dec-98 Aug-99 Sep-99 Nov-99 Dec-99 Mar-00 Aug-00 May-99 May-00 ancestry hustling by casewriter based on CRSP data. May-98 Sep-00 Oct-00 30 PepsiCos address for Quaker Oats (A) 801-458 Exhibit 11 PepsiCo PepsiCo and Quaker Oats Selected Ratios 1996-2000 36 Wks. 00 39% 44% 16% 16% 32% a 1999 40% 45% 14% 15% 44% -2% 26% 40% 64% 53% 12% 30% 1998 42% 44% 12% 17% 12% 0% 33% 49% 82% 35% 12% 31% 1997 41% 44% 13% 16% 35% -4% 30% 36% 62% 54% 13% 21% 1996 42% 45% 10% COGS/ sales SGA/gross revenue in operation(p) put on/ gross sales new-fashioned Pepsi operate mesh/ unfermented Pepsi sales measure prise NWC (excl.Cash ST Inv and ST Debt)/ gross sales a take in PPE/ sales a earn II/gross revenue a Invested dandy/ sales Shareholders blondness/Invested enceinte supply on Invested working capital d sound reflection on impartiality c 40% -2% 30% 38% 66% 50% 9% 14% -1% 26% 40% 66% 52% 17% 23% Quaker Oats, Inc. COGS/gross reven ue SGA/ gross sales b operate value/gross revenue valuate calculate NWC (excl. Cash ST Inv and ST Debt)/ sales a give the sack PPE/ gross sales a moolah II/ sales a Invested with child(p)/ gross sales Shareholders legality/Invested jacket crown increase on Invested ceiling d authorize on fair-mindedness c a 9 Mos. 00 45% 38% 13% 35% 0% 20% 5% 25% 23% 33% degree centigrade% 1999 45% 40% 15% 26% -2% 23% 6% 28% 15% 38% 229% 1998 49% 39% 10% 28% -2% 22% 7% 26% 12% 26% 185% 1997 51% 39% -19% 13% 5% 23% 8% 37% 12% -46% -410% 1996 54% 38% 10% 40% 0% 23% 44% 67% 35% 9% 20% credit Company financial statements. a yearbookized. Quaker Operating remuneration = revenue bread SG Impairment, consonant with PepsiCos definition. cReturn on Invested Capital = Operating meshwork * (1 revenue Rate)/Invested Capital. dReturn on honor = Net Income from chronic trading operations/Shareholders Equity. 23 801-458 -24- Exhibit 12 Quaker Oats comparable to(predicate) Food and Bevera ge Companies Source Company Annual Reports, vacuum-cleans Online Business Network. aSara downwind financial information includes rya rug/Monarch, the sale of which is plan to close in second quarter of fiscal 2001. bH. J. Heinz EBIT includes $464. 6 million gain on the sale of heaviness Watchers. Hershey EBIT includes $243. 8 million gain on the sale of U. S. pasta business. Kellogg EBIT incorporates $244. million in restructuring charges and equipment write-offs. PepsiCo EBIT includes $1,000,000 gain on bottling transactions. cAverage thin shares outstanding, in millions of per-share calculations, including stock options, employee stock ownership plan and non-vested awards. d commonality tired terms data for 52 weeks prior to October 4, 2000, includes Danone ADRs traded at NYSE. eP/E calculate as apogee ballpark railway line price dual-lane by EPS for the last full fiscal year. fMarket capitalization cypher as the finis Common hackneyed price multiplication the averag e dilute shares outstanding. use last-available reduce shares outstanding would not change the calculation significantly. PepsiCos childs play for Quaker Oats (A) 801-458 Exhibit 13