Big Bottling Deal Accord Reached
BOSTON (AP) _ Soft drink giant Pepsico Inc. has agreed to buy General Cinema Corp.’s bottling business for $1.75 billion in cash, the companies announced Friday, two weeks after an earlier deal fell through.
The previous deal, which carried a price tag of $1.5 billion, disintegrated after the Federal Trade Commission asked for additional details to determine whether it might violate antitrust laws. The delay prevented the sale from being completed in time for General Cinema to obtain tax deferral benefits.
″We’re delighted that we reached a new agreement like this,″ said General Cinema spokesman Phil Nardone. He said the companies negotiated for the past two weeks and ″every time one of the parties walked away from the table, the other party came back, so it showed you that both parties really wanted this transaction to come to fruition.″
In trading on the New York Stock Exchange, Pepsico fell 75 cents a share to $38.75 a share while General Cinema rose 37 1/2 cents a share to $24.37 1/2 .
Pepsico spokesman Jim Griffith said despite the higher price tag, the new deal won’t actually cost Pepsico $250 million more because of offsetting reductions in financing costs and taxes.
″Comparing the net after-tax cost of Pepsico of the deal we signed today and the deal that we had hoped to do in 1988, the difference to Pepsico is only about $60 million more,″ Griffith said. ″The reason for that is that this deal allows us lower effective financing costs and higher net tax benefits.″
″You’re talking about a 5 percent difference and the deal makes great sense for us both from a strategic standpoint and an operating standpoint,″ Griffith said.
Analysts have said the deal would bring one of the nation’s biggest independent bottlers under Pepsico’s control, allowing the Purchase, N.Y.-based company to consolidate bottling operations and reduce costs.
Under the new deal, General Cinema will not be able to defer $400 million in capital gains taxes over 20 years, because that provision expired Dec. 31, but Nardone said the advantage of having cash, which can be invested until the taxes are due, helps offset the loss.
Nardone said the new cash deal is an improvement over the previous arrangement, which was for a 20-year Pepsico note.
The companies said the revised deal is subject to signing a definitive agreement. The companies also said they do not anticipate any unusual delays in giving the FTC the additional information it wants.
Nardone said the deal means General Cinema will be pulling out of the bottling business, although it maintains an 18 percent interest in Cadbury Schweppes PLC.
General Cinema, a film exhibition and soft-drink bottling concern based in Chestnut Hill, Mass., owns and operates 1,359 movie screens at 318 locations. The company also owns about 60 percent of the Neiman Marcus Group.
General Cinema entered the bottling business in 1968 when it acquired American Beverage Corp., which held Pepsi-Cola franchises in Miami and northern Ohio. It subsequently purchased other franchises and has regional bottling facilities in Atlanta; Jacksonville, Fla.; Winston-Salem, N.C.; Twinsburg, Ohio and Charleston, W. Va.
The company’s beverage unit had revenue of about $720 million for the fiscal year ending Oct. 31.