How attractive to PepsiCo is the proposal to buy 30% of Deltex for 1.1B pesos (US$360M)? Based on the information in the case, Pepsi could invest US$360 million in exchange for 30% equity of Deltex. So we have to calculate the value of 30% equity of Deltex. First, we calculated the discount factor by using average unlevered beta of US independent bottlers, US 10 year Treasury bond as risk free rate and assuming market risk premium 10%. We came up with 9.83% of WACC. Next, we calculated Deltex free cash flow and terminal value and then converted them into US dollar value. Now with WACC and total cash flow, we had NPV of the company. So we deducted current debt from NPV and came up with the value of US$360M investment equal to 59.99% of Deltex equity. So the proposal to buy 30% of Deltex with US$360M is too expensive to PepsiCo and not attractive to PepsiCo. If we look at the sensitivity analysis, we find as WACC increases, the percentage of US$360M investment in Deltex also increases. When WACC is 5.8%, the percentage of US$360M investment in Deltex is equal to 30% equity of Deltex. WACC Percentage of Equity 4% 19.35% 6% 31.35% 8% 45.25% 10% 61.44% 12% 80.39% 14% 102.69% 16% 129.18% 18% 160.96% 6. As Suarez, would you invest in the Sanchez/ Deltex joint venture as proposed in the case? Why or why not? Can you suggest a joint venture arrangement that is more attractive to both PepsiCo and Deltex? In deciding whether to invest in Deltex, we have to consider some advantages and disadvantages of this deal first. Advantages and Opportunities for Pepsi a. Pepsi needed a strong regional partner. Pepsi had been falling behind to Coke in Mexican market. However, changes in the regulatory environment had cut Coke’... ... middle of paper ... ...nties there would be in the joint venture. Overall, we think advantages outweigh disadvantage but Sanchez should revise the proposals. First he should raise the equity percentage that Pepsi can receive. Depending on WACC, we propose to increase to 40%. Second, regarding to management, Deltex was long time Pepsi’s bottler and their relationship had worked well in the past years. However, with such big investment, we think Pepsi should take measures to ensure its strategies were taken. Those measures included Deltex should report its operations and strategies to Pepsi on the monthly basis, Pepsi should reserves the right to appoint half of the Deltex board of directors and CFO or other key personnel except operating managers. Also, Pepsi should be given a right of first refusal to any transaction in which Sanchez was to sell his shares as in Gallardo joint venture.
First of all an analysis of the packaging machine investment’s hurdle rate is required. I will use comparable firm parameters approach to figure out the hurdle rate (WACC) of the firm using the information provided in Exhibit 5. The cost of debt should be calculated using the bond information given in footnote 2 of case under Exhibit 2. The cost of equity should be calculated using the Capital Asset Pricing Model.
The first thing Tremont has to do is to start using a different discount rate. Rather than using the CFO’s suggested cost of debt as the discount rate, it would be more appropriate to use Weighted Average Cost of Capital, as Tremont uses a mix of debt and equity.
At the end of 1991, PepsiCo had EBITDA of $2.1 billion or operating profit margin of 10.8% - down from profit margins of 12.2% and 11.7% in 1990 and 1989, respectively. In addition, net sales only grew by 10.1% in 1991 – considerably low versus growth of 16.8% and 21.6% in 1990 and 1989, respectively. Recent acquisitions of Taco Bell franchises in 1988, bottling operations in 1989, Smiths Crisps Ltd. and Walkers Crisps Holding Ltd. in 1989, and Sabritas S.A. de C.V. in 1990 aided sales in growth in 1989 and 1990. Additionally, a joint venture with the Thomas J. Lipton Co. in 1991 to develop and market new tea-based beverages may lead to greater sales in the future. However, there is some need for an immediate return on its investments in order to sustain historical revenue growth and increase the current profit margins.
The acquisition will not harm SoBe’s performance as long as each company, giant PepsiCo and nicher SoBe, will stick to what they can best; SoBe has to attract the youth, Pepsi the mass. My experience shows that many acquisitions are done quietly; on a ‘hidden level’. This should be very important to hold the young customers of SoBe. If the fickle target group of SoBe not even take in what happened their loyalty is given to a 100%.
The Beverage Industry is a highly competitive one and tends to be dominated by a few major actors. The two biggest worldwide known and most influential companies are Coca-Cola and Pepsi. The limited growth opportunities make this competition very intense, requiring companies to follow the trends and be always aware of the competitors' progress. However, the demand for the products depends a lot on the economic conditions within the society. Those few big players enjoy the benefits of the strong loyal customer base during the growth and stability stage in the economy, whereas in times of economic difficulties customers turn to cheaper substitutes. Thus, although the key feature of the industry is that it is very difficult for a new unknown company to enter the market and compete with well-known long-established businesses, the companies should pay significant attention to the new entrants, especially in times of economic instability. Consumer tastes are also seasonal, meaning that the demand for the carbonated beverages is higher during the hot months of the year. Shifting consumer preferences bring the concern of operating uncertainty, which greatly affects pricing strategies. The large companies pay reliable dividends...
Coca cola has always dominated the markets outside United States unlike Pepsi’s internationalization strategy that took too long. Therefore, the long-term brand of Coca cola and better pricing strategies would help in competing with Pepsi. Unlike, Pepsi, Coca cola had targeted entering into partnership and alliances with local distributors and firms. This helps to develop strong relationship within the domestic firms to reduce the domestic barriers and thus, enhance the company’s competitiveness (Thabet, 2015). Lastly, the Asian markets consist of related and supporting industries to the soft drink industry that helps the companies in gaining a strong competitive position in the markets. Based on the competitive advantage of nation’s model, Coca cola has more home based advantages to develop a competitive advantage in relation to other countries on a global
BR was sold to Delta Foods in 1996 for US $2 billion. At this time, it was one of the largest fast-food chains in the world generating sales of US $6.8 billion. DF purchase of BR brought in a new cultural paradigm. DF is an individualistic, aggressive growth company with brands they believe are strong enough to support entry into new overseas markets without the need for local partnership. The DF strategy is one of direct acquisition and JV’s were not part of their strong suit. DF strategic implementation is based on hiring local managers directly or transferring seasoned managers from their soft drink and snack food divisions. The DF disdain for JVs is clearly reflected by their participation in only those JVs where local partnering was mandatory (e.g. China) to overcome regulatory barriers to entry. JVs had been the predominant strategy for BR which was unlike the DF outlook. Terralumen’s strategy was misaligned and out of sync with the DF strategy. This was unlike the complementarity that existed with BR’s strategy. This misalignment began to affect the JV relationship that had worked well with BR in the initial years. The failure of Terralumen and DF to recognize this fundamental cultural difference between their operational strategy styles i.e. Individualistic and Collectivism leads to their inability to proactively create steps for better alignment in the early period after acquisition, creating uncertainties and difficulties for both corporations. There is a lack of communication and virtually absence of trust between two new partners. DF appeared to be flexing its muscles in the relationship and using a more masculine approach compared to Terralumen’s more feminine approach. Both the corporations are strategically involved in a complex situation where they appear reluctant to address the issues at stake and move ahead together. The DF strategy of
Pepsi Cola Marketing Strategy PEPSI COLA For Pepsi Cola Ltd, marketing opportunity analysis is a continual and ongoing process. Pepsi have used the new product strategy to realise their ambitions to both defend their current market position, and reinstate their position as a product innovator. Pepsi wishes to create a clear cola that is 100% natural, low in sodium, caffeine-free, and still maintains the flavour of its original cola. They will call it Pepsi Au Naturel.
As we all should know, PepsiCo is one of the world’s leader in convenient food and beverages. PepsiCo shares are traded worldwide and particularly in NYSE (United States). PepsiCo is in the same line with Coca cola and Cadbury Schweppes as the dominating beverage companies. PepsiCo has successfully built a great brand name rivaling with coca cola, probably because PepsiCo unlike coca cola has its own bottling companies. With a competitive strategy based on differentiation rather than cost leadership like its fellow competitors PepsiCo invests highly in new packaging, flavors, formulas to outsmart their competition. Founded in 1919, producing a variety of sweet and grain-based snacks, carbonated and non-carbonated
coca cola company has been noted to be among those with successful business strategies in the world market. Also, it is a large corporation with over 70,000 employees. It has established its brand in over 200 countries including Japan. Out of the 70,000 employees, 59,000 are spread out in the 200 nations across the globe. The case study provides the history of coca cola Company regarding strategies it has employed in the past and the rate of their success. The one-size fits all approach used by Goizueta served the company till his successor took over in the 1990s. The company’s primary problem was crafting and executing an effective strategy to utilize its
Competitive pricing is a factor, which the firm should keep in mind all the time. The scenario is very important because there can be civil disturbance, fall in sales due to inflation, or cross-border situations. As a result, Pepsi has to stay updated with all changes and policies in order to adapt.
The final model used to compute the cost of capital was the earning capitalization model. The problem with this model is that it does not take into consideration the growth of the company. Therefore we chose to reject this calculation. The earnings capitalization model calculations were found this way:
During the last few years, Harry Davis Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program that had been proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Harry Davis’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task.
Changes in the external environment will create opportunities or threats in the market place Coca cola must be aware off. Fluctuations in the economy, changing customer attitudes and values, and demographic patterns heavily influence the s...
Coca-Cola Company is the leading soft drink and beverage company across the globe that has constantly achieved tremendous success and profitability throughout its operations. The company’s success and profitability throughout the years can be attributed to effective management strategies of its business operations. This has contributed to a strong reputation that has not only attracted a huge customer base but also resulted in enhanced performance. The success and profitability can also be attributed to diversification of its products and provision of excellent customer service. However, the company has experienced significant challenges in the recent past that has forced its former executive to