After a monthlong takeover struggle for Quaker Oats Co., PepsiCo Inc. agreed yesterday to acquire the company for about $13.4 billion in stock, executives close to the deal said.
The transaction, which gives Pepsi control of Quaker's much-coveted Gatorade sports drink brand, is expected to be announced today, the executives said.
The agreement for Quaker, based in Chicago, has been approved by the boards of both companies. It comes after a corporate contest that included the rejection of a first offer from PepsiCo, a preliminary bid from the Coca-Cola Co. that was rescinded after Coke's board blocked the deal, and maneuvers by Danone of France that were eventually abandoned.
Underlying the deal is a trend in which consumers are forsaking sodas on a broad scale in favor of bottled waters, herb-laden teas and juice drinks with exotic extracts. To avoid missing the trend, the soft-drink giants have scrambled to buy the industry's top noncarbonated brands or develop their own.
PepsiCo, based in Purchase, N.Y., already owns the best-selling bottled water brand, Aquafina, as well as the leading iced tea and iced coffee.
By capturing Gatorade, Pepsi leaps far ahead of the field, nearly doubling its share of the noncarbonated market, to 33 percent from 18 percent, compared with 21 percent for Coke, according to Sanford C. Bernstein & Co.
Coke still dominates the soft-drink industry with 40 percent of the market - even with Gatorade, Pepsi is runner-up, with 32 percent - but losing what many analysts refer to as the gem of noncarbonated drinks puts Coke in the unusual position of having to play catch-up with its smaller rival.
Under the terms of the agreement, which are the same as the PepsiCo offer that Quaker rejected as too low a month ago, PepsiCo will pay 2.3 of its shares - or $97.46 a share - for every share of Quaker, the executives said. That represents about a 10 percent premium over Quaker's share price, which rose $2.06, to $89, on Friday after the renewed talks were reported.
PepsiCo's shares fell $3.13 on Friday, to $42.38. PepsiCo will also assume about $760 million in debt, the executives said.
The only difference between the PepsiCo offer that was accepted and the one that was rejected is that it now includes a "collar" to protect shareholders from drastic swings in PepsiCo's share price. The executives said that if PepsiCo's stock dropped to less than $40 a share for at least 10 days during the final month before the deal closes, Quaker would have the option to terminate the deal. If PepsiCo's stock traded at $40, it would produce a value of $92 a share for Quaker.
On the other hand, if PepsiCo's offer is valued at more than $105 a share - which means PepsiCo's stock would have to rise to more than $45.65 a share - shareholders of Quaker would receive no more than $105 a share.
If Quaker abandons the deal, the executives said, it will have to pay PepsiCo a $420 million breakup fee.
For Roger A. Enrico, the chairman and chief executive of PepsiCo, who nursed the company through a series of woes in the 1990s and transformed it into one of the darlings of Wall Street analysts, the deal is something of a coup.
This is the second time in two months that he has beaten Coke in buying a fast-growing noncarbonated brand, providing him with the chance to end his career on a winning streak when he retires next year. Last month, Pepsi bought a majority stake in the South Beach Beverage Co., the maker of SoBe, a line of "New Age" drinks. Coke had been negotiating with the company for months.
The deal is also a windfall for Robert S. Morrison, Quaker's chairman and chief executive, who owns more than 1.1 million of the company's shares - now valued at about $98 apiece - that will be converted into cash once the handover is completed.
One Quaker asset that may have been overlooked in the maneuvering over the last month is its food business, which includes brands such as Rice-A-Roni, Aunt Jemima and Cap'n Crunch.
But of the three companies that appeared eager to get their hands on Gatorade, Pepsi stands to benefit the most from the cereals and granola bars that accompany it, analysts said.
Coke dabbled in wine in the 1970s and owned Columbia Pictures from 1982 to 1989, but has limited experience - or interest - in anything other than the soft-drink business.
Pepsi, on the other hand, derives roughly 60 percent of its revenue from Frito-Lay, a strong competitor in the snack-food industry.