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Pepsi’s Dividend Hike Signals Twist in Bottling Mergers (PEP, PBG, PAS)

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By Douglas A. McIntyre Updated Published
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Pepsico, Inc. (NYSE: PEP) has just come out and announced it was going to hike its dividend by some 6%.  The $1.70 annualized dividend will now be $1.80 on an annual basis that is paid out quarterly.  Normally, these announcements are a blip on the radar, but this could actually signal that it has the capital to pay more for that proposed Pepsi Bottling Group Inc. (NYSE: PBG) acquisition.  It may even have an ultimate impact on PepsiAmericas Inc. (NYSE: PAS).

It was just on Monday that the board of Pepsi Bottling Group Inc. sent a letter to Indra Nooyi, CEO & Chairman of PepsiCo.  Pepsi still owns 33% of PBG after a 1999 spin-off.  It said that the $29.50 for the remaining stake of about $6 billion was opportunistic timing at an inadequate value with understated synergies.

Again, normally we would not give this much thought.  But PBG shares closed at $31.76 today. It also has actually not traded under the $30.00 mark at all on any closing share price-basis since the offer was made by Pepsico.

Raising a dividend is a signal that business is going to hold up.  PBG already gave earnings and raised its full-year guidance for earnings per share and operating free cash flow and management said the terms essentially are at a zero-premium based upon that new guidance.

We do not know if PepsiCo is going to make another offer or not.  We know they are essentially the only “owner of ease” as their businesses are interlocked and because of the 33% stake.  But the higher dividend signals that Pepsico can probably afford to pony up more cash for PBG.

Ditto for PepsiAmericas Inc. (NYSE: PAS).

Jon C. Ogg

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.

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