Filed by PepsiCo, Inc. pursuant
to
Rule 425 of the Securities Act of 1933
and
deemed filed pursuant to Rule 14a-12 of
the
Securities Exchange Act of
1934
Subject Companies: The Pepsi Bottling
Group, Inc.
Commission File No.:
001-14893
and
PepsiAmericas, Inc.
Commission File No.:
001-15019
INDRA: Good
morning. Good morning, everyone. Good
morning. Thank you. I decided that after every earnings
call we’re going to announce a transaction. Because I didn’t even
know we had so many people in Purchase. I’m going to start taking
roll call because after an earnings call, it feels a bit lonely not having as
many people. So, next time by department we’re going to take roll
call to make sure you all show up. But, today is one hell of a day in
the history of PepsiCo and our bottling partners because today we announced that
PepsiCo has entered into definitive merger agreements with PepsiAmericas and The
Pepsi Bottling Group, our largest anchor bottlers. And the market
seems to like it.
The
market seems to like it. Stock is up $3.13 to $59.33. You
know what? We’re all absolutely delighted that PBG, PAS and PepsiCo
will be united as one family again. Our companies have had a very
close working relationship over the last 10 years and the combination of our
businesses will build upon our rich tradition of partnership as well as our
shared values and culture. Fundamentally, I see this change as a very
natural next step for our system, a move that’ll allow us to build on
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the
outstanding work of nearly 300,000 people around the world and that has gotten
us to where we are today. It’ll put us in a better position to build
our brands, serve our customers and generate healthy long-term
growth. Let me put this in perspective. This transaction
makes PepsiCo a Company of almost $60 billion in revenue and pre-tax profits
coming close to $10 billion. So, we’re one hell of a company
guys.
So, if
you look at the best businesses in the world, the ones that succeed in a big way
over the long term, it’s very clear that they continuously evolve and adapt as
the world changes around them. And this is exactly what we’re seeking
to do today. In the last 10 years as we talked about when we
announced this transaction, our operating environment in North American
beverages has evolved dramatically. Retailers have continued to
consolidate, new competitors have emerged and non-carbs, which have a different
manufacturing platform and different economics than carbonated soft drinks are
now a much bigger part of the market. And more importantly,
customers, consumers, shoppers are expecting a lot more choices out of beverages
very different from what this
market
looked like a decade ago. And our current bottle operating model has
worked very well for the last 10 years and, unfortunately, that model was not
designed for today’s operating environment or the operating environment we
expect over the next 10 years. To succeed today and to strengthen our
position in the global beverage market place, we need a model that offers a
powerful combination of scale, speed, flexibility and efficiency. And
we need a model that can bring a wide variety of new products to market quickly
through whatever distribution system makes most sense for the economics of that
product. We need a model that can handle established large volume
high velocity products, as well as smaller emerging brand, which are still in
the early stages of development. And we need a model that can address
the growing demands of our retail customers, many of whom are national,
international and sometimes global. And we need a model that can
capitalize on a unique competitive advantage, the bundling of products across
beverages and then across beverages and foods.
I believe
the coming together of PepsiCo, PBG and PAS is going to allow us to do just
that. The advantages of this model are not just in the United States,
it’s
global. In
Russia and Eastern Europe, for example, the changes announced today will
simplify our operations and it allows us to build on an already terrific power
of one model that we have in those countries. We also have very clear
power of one opportunities in Turkey, Spain and Mexico. But, clearly,
North America is where most of the opportunities are and that’s where we’re
going to realize most of the synergies.
As you
know over the past year or so, we’ve been working very hard to transform our
North American beverage business. We started with the brand refresh
campaigns. We’re now coming with a whole series of product
introductions across CSD’s and non-carbs. And even though there might
be arm chair critics out there, I must say I’m extremely pleased with the
progress of our North American beverage business, not just pleased with the
progress, I am proud of our North American beverage team. But, I
believe combining our companies will be a giant step towards making the Pepsi
system, the blue system, a real powerhouse.
But, I
think combining our companies is going to make the entire blue system a
powerhouse by creating a more meaner, leaner, agile business model and a
stronger
foundation
for future growth. And as one company, we can unlock all kinds of
cost synergies, make decisions more quickly and increase our strategic
flexibility. And the good news is at the conclusion of these
transactions, we will directly control approximately 80% of the volume that goes
through the North American system including the warehouse and the DSD
system. And this control of 80% of volume will actually yield
tremendous direct benefits. For one, we can present a unified face to
our retail and food service customers, which will allow us to provide more
customized solutions and product bundles. And this transaction also
enables us to align all the steps in the value chain from creation of products,
to innovation, to pricing, manufacturing, go to market. And we’ll
have flexibility across the systems to optimize revenue, productivity and cost
by channel and customer. For example, we can ship products easily
back and forth between the distribution systems and actually figure out which
product needs to go through which distribution system for which
channel.
Furthermore,
I think we can streamline decision making across the company. You
know friction is not very
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good and
friction with neighbors and friends is really terrible. I think this
transaction will take away all of that friction and really make us a much more
harmonious system. And, finally, the fact that we’re coming together
means that we’re expanding the profit pool of this business and as I said to you
when we announced this transaction in April, when you have a shrinking profit
pool because the category is not growing in North American beverages and you
have 3 growth companies feeding off of that shrinking profit pool, the math
simply doesn’t work. And I think through the coming together of the
system, by taking out all of the redundant costs, we are in fact creating a much
more efficient system going forward.
As you
can imagine, over the last 3 or 4 months, this transaction has been upper most
in the minds of many of us on 4/3. And looking back to April and
thinking about today, our confidence level in this transaction has actually gone
up and that’s why we’ve taken out the synergy numbers from $200 million to $300
million and we’re convinced more so than ever that this is the right move to
make for our companies and this is right time. Because I think as a
system, we’re going to build a bigger, better
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future
for the entire population base of PepsiCo, PBG and Pepsi Americas.
It’s not
going to be easy. The hard work is just beginning and we’ll face a
lot of challenges over the next few months as we work through the steps required
to complete the transaction. But, have no fear, we’ve done Quaker,
we’ve done the post merger integration, we know how to do this, I think we’ll
get this over the finish line. And while it’s too early to tell you
exactly how this integration process will unfold, who’s going to be running each
of the projects. I can tell you that we’ve already started the work
and we’ll be ready to announce all of that in the next couple of
weeks. But, there are 5 guiding principles we plan to follow while we
put this whole integration team in place.
First, we
have to preserve the strategic intent of this transaction. This means
we have to relentlessly drive towards the new model grounded in speed,
simplicity and flexibility. And this means there’s going to be no
sacred cows, the debate should be on what’s best for the business and keeping
the customer in mind always. Also, while we preserve the strategic
intent of the transaction,
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we want
to make sure that in this post merger integration phase, we strike the
appropriate balance between the optimal long-term structure and the costs of
short-term business disruption. So, we’ll sort of walk this fine line
very carefully. Number 2, we want to make sure we build a transition
team which represents the best of all 3 businesses. And we have to do
that if we fully leverage the collective strengths of all 3
organizations. We want to establish cross functional teams, we will
understand the processes that exist in each of the organizations, we surface
differences and get to the best answer and we will carry out an organization
design and people planning with fairness and balance.
And let
me make a point here. I know a lot of you in the North America
beverage business are very eager to start conversations with PBG and PAS and I’m
sure e-mails are flying already. Please, PBG and PAS are still
independent companies and will remain independent companies until this
transaction actually closes. In the interim, you can’t just ask for
data beyond the normal course of what you’ve been dealing with in the past few
months. And anything extraordinary that you’re asking of them, please
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clear it
with the lawyers, we’ll put a process in place for that.
The third
guiding principle is to start with the work. We have to plan
appropriately, assign the right resources and move quickly in the areas that
yield the greatest benefits, which means we’ve got to put all the relevant
options on the table so that we can evaluate them very, very
carefully.
Guiding
principle number 4, in pursuing power of one opportunities we have to keep in
mind that between the bottling company and the franchise company there are
really two cultures. There’s an operating culture in the operating
company, there has to be a brand culture in the franchise company. We
have to keep the two distinct and separate because if we were to squish the two
together you’ll start sub-optimizing A&M and sometimes we might start
sub-optimizing the operating system. So, yes, we’re going to pursue
power of one, but we’re going to make sure we keep these two cultures separate
and distinct.
And
number 5, critical number 5, through this integration process we cannot afford
to drop a case. In fact, I just told Frank Cooper, all the excuses
are gone.
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Let’s
find those cases. All those cases I didn’t find some of those weeks
and months over the past 2 months or so, let’s find them.
So, those
are the principles we will follow in bringing our companies
together. And I promise you that you’ll hear a lot more from us over
the coming weeks and months as we enter the process of integrating the
companies. In the meantime, I just want you all to know that we are
very, very excited to be welcoming PBG and PAS associates into PepsiCo and I
think together we now have an incredible opportunity to lead in the North
American beverage market. But, more importantly, long term really
reshape our North American food and beverage business and create layers and
layers of advantage that really makes us the North American food and beverage
powerhouse.
So,
again, a big day, big news and the hard work just begins, but I think we’ve
written – at least we’ve turned the page to write a new chapter in the history
of PepsiCo, a glorious chapter for North American beverages, but more
importantly a phenomenal chapter that is going to start talking about a new
strategic future for all our North American businesses.
10
Cautionary
Statement
This
communication does not constitute an offer to sell or the solicitation of an
offer to buy any securities or a solicitation of any vote or approval. PepsiCo,
Inc. (“PepsiCo”) and The
Pepsi Bottling Group, Inc. (“PBG”) plan to file with the
Securities and Exchange Commission (“SEC”) a registration statement
on Form S-4 containing a proxy statement/prospectus and other documents with
respect to the proposed acquisition of PBG and a definitive proxy
statement/prospectus will be mailed to shareholders of PBG. PepsiCo and
PepsiAmericas, Inc. (“PAS”) plan to file with the
SEC a registration statement on Form S-4 containing a proxy statement/prospectus
and other documents with respect to the proposed acquisition of PAS and a
definitive proxy statement/prospectus will be mailed to shareholders of PAS.
INVESTORS AND SECURITY HOLDERS
OF PBG AND PAS ARE URGED TO READ THE APPLICABLE PROXY STATEMENT/PROSPECTUS AND
OTHER DOCUMENTS THAT WILL BE FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY WHEN THEY
BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION.
Investors
and security holders will be able to obtain free copies of the registration
statements and the proxy statements/prospectuses (when available) and other
documents filed with the SEC by PepsiCo, PBG or PAS through the website
maintained by the SEC at http://www.sec.gov. Copies of the documents filed with
the SEC by PepsiCo will be available free of charge on PepsiCo’s internet
website at www.pepsico.com
or by contacting PepsiCo’s Investor Relations Department at 914-253-3035. Copies
of the documents filed with the SEC by PBG will be available free of charge on
PBG’s internet website at www.pbg.com
or by contacting PBG’s Investor Relations Department at 914-767-7216. Copies of
the documents filed with the SEC by PAS will also be available free of charge on
PAS’s internet website at www.pepsiamericas.com
or by contacting PAS’s Investor Relations Department at
612-661-3883.
PBG and
its directors, executive officers and certain other employees may be deemed to
be participants in the solicitation of proxies in respect of the proposed
acquisitions of PBG. Information regarding PBG’s directors and executive
officers is available in its Annual Report on Form 10-K for the year ended
December 27, 2008, which was filed with the SEC on February 20, 2009,
and its proxy statement for its 2009 annual meeting of shareholders, which was
filed with the SEC on April 7, 2009. PAS and its directors, executive officers
and certain other employees may be deemed to be participants in the solicitation
of proxies in respect of the proposed acquisitions of PAS. Information regarding
PAS’s directors and executive officers is available in its Annual Report on Form
10-K for the year ended January 3, 2009, which was filed with the SEC on March
4, 2009, and its proxy statement for its 2009 annual meeting of shareholders,
which was filed with the SEC on March 18, 2009. Other information regarding the
participants in the proxy solicitations and a description of their direct and
indirect interests, by security holdings or otherwise, will be contained in the
proxy statements/prospectuses and other relevant materials to be filed with the
SEC when they become available.
Statements in this release that are
“forward-looking statements” are based on currently available information,
operating plans and projections about future events and trends. They inherently
involve risks and uncertainties that could cause actual results to differ
materially from those predicted in such forward-looking statements. Such risks
and uncertainties include, but are not limited to: PepsiCo’s ability to
consummate the acquisitions of PBG and PAS and to achieve the synergies and
value creation contemplated by the proposed acquisitions; PepsiCo’s ability to
promptly and effectively integrate the businesses of PBG, PAS and PepsiCo; the
timing to consummate the proposed acquisitions and any necessary actions to
obtain required regulatory approvals; the diversion of management time on
transaction-related issues; changes in demand for PepsiCo’s products, as a
result of shifts in consumer preferences or otherwise; increased costs,
disruption of supply or shortages of raw materials and other supplies;
unfavorable economic conditions
and increased volatility in foreign exchange rates; PepsiCo’s ability to build
and sustain proper information technology infrastructure, successfully implement
its ongoing business process transformation initiative or outsource certain
functions effectively; damage to PepsiCo’s reputation; trade consolidation, the
loss of any key customer, or failure to maintain good relationships with
PepsiCo’s bottling partners, including as a result of the proposed acquisitions;
PepsiCo’s ability to hire or retain key employees or a highly skilled and
diverse workforce; changes in the legal and regulatory environment; disruption
of PepsiCo’s supply chain; unstable political conditions, civil unrest or other
developments and risks in the countries where PepsiCo operates; and risks that
benefits from PepsiCo’s Productivity for Growth initiative may not be achieved,
may take longer to achieve than expected or may cost more than currently
anticipated.
For
additional information on these and other factors that could cause PepsiCo’s
actual results to materially differ from those set forth herein, please see
PepsiCo’s filings with the SEC, including its most recent annual report on Form
10-K and subsequent reports on Forms 10-Q and 8-K. Investors are cautioned not
to place undue reliance on any such forward-looking statements, which speak only
as of the date they are made. All information in this communication is as of
August 4, 2009. PepsiCo undertakes no obligation to update any forward-looking
statements, whether as a result of new information, future events or
otherwise.