Bids begin for Pepsi-Gemex

The US-based Pepsi Bottling Group on Monday began bids in the United States and Mexico for an $880 million (€897m) purchase of Pepsi-Gemex, the largest Pepsi bottler in Mexico.

The previously announced move from Pepsi Bottling Group (PBG) is expected to mark the start of an aggressive campaign to win market share in Mexico from Coca-Cola Co.

Pepsi, mainly via Pepsi-Gemex, which is by far the biggest bottler of Pepsi products in Mexico but not considered to be well managed, commands a 19 per cent market share of the national soft drinks market. Coca-Cola has over 70 per cent.

Enrique Molina Sobrino, Pepsi-Gemex's Chairman, and beverage giant PepsiCo have each agreed to sell about 40 per cent and 34.4 per cent respectively of the total outstanding capital stock of Pepsi-Gemex.

Analysts say the plan for PepsiCo to sell its stake to Pepsi Bottling will make it clear who owns what of Pepsi-Gemex, the second largest bottler of Pepsi-Cola outside the United States.

Pepsi-Gemex's board has recommended that all other Pepsi-Gemex shareholders accept the offers and sell their shares.

The US cash offer is for all global depositary shares at 106.38 pesos per GDS. For all series B shares and ordinary participation certificates (CPO) held by holders who are not resident in Mexico, the bids are 5.91 pesos per share and 17.73 pesos per CPO.

Pepsi Bottling Group did not put a value on its total bids for Pepsi-Gemex. But according to analysts, the offer is worth 8.967 billion pesos (about €897m) million) at current peso-dollar prices.

Analysts said the PBG offer is in line with market expectations and was some 3 per cent above Friday's closing GDS price of $10.08, mainly because the tender price still carries some foreign exchange risk.

"The tender price is some $10.40 per GDS (using current foreign exchange rates). This is slightly lower than we had originally anticipated...of $10.60, but mostly due to the devaluation of the peso,"​ wrote Adriano Saebra, analyst with Credit Suisse First Boston.

"The recommendation is for people to accept the tender,"​ said Ismael Capistran, analyst with Valores Mexicanos brokers. "It is really well priced and the administration of Pepsi-Gemex only knew how to lose market share to Coca-Cola."​

Pepsi-Gemex's local shares went untraded on Monday. They have not exchanged hands since 3 October. On Wall Street, its GDSs rose 1.98 per cent to $10.28.

The Mexican offer is for all series B shares and CPOs at the same prices offered in the US tender offer. The purchase price in the Mexican offer will be paid at the election of the holder in Mexican pesos or US dollars calculated as described above.

Pepsi Bottling expects to eliminate all shares of Pepsi-Gemex not purchased in the tender offers through a reverse stock split, in which all remaining holders will receive the same prices offered in the tender offers in Mexican pesos.