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Pepsi Plans $100 Million Claim Against Bottler That Defected to Coke

August 22, 1996

CARACAS, Venezuela (AP) _ Destroying Pepsi’s dominance here virtually overnight could cost a bottler more than $100 million in penalties for breaking his contract and defecting to Coca-Cola.

Pepsico Inc.’s regional president, Alberto Uribe, told The Associated Press on Wednesday that bottler Oswaldo Cisneros owes $100 million to $140 million in penalties for last week’s defection.

It left Pepsi temporarily unable to produce, bottle, distribute and sell a drop of cola in Venezuela.

Without specifying a figure, Cisneros said he is willing to pay.

``We had a franchise contract through 2003. That’s true,″ he was quoted as saying in Wednesday’s El Nacional newspaper. ``But it also included a clause that establishes if either of the two parties decides to withdraw early, he can do it under the condition of paying a penalty. I’m ready to assume that.″

Cisneros has declined repeated requests for an interview with The Associated Press.

Last week, Venezuela was Pepsi’s sixth biggest national market, with sales of about four million cases a month, worth $350 million a year. This week, it already is hard to find Pepsi in grocery stores.

Following last Friday’s surprise announcement of the new deal with Coke, Cisneros began bottling Coke, some 200,000 cases of it at his 18 plants over the weekend. The pace since has increased.

The Coke-Cisneros partnership would control an estimated 98 percent of soft drink production in Venezuela.

Uribe insists Pepsi will return to one of the few countries in the world where it dominated Coke, outselling it 4-1. However, he said it may take two years to line up a new production and distribution system.

``It’s not just cargo ships. We’d need trains, trucks, planes and boats″ to reach all the outlets served by Cisneros’ 2,500 trucks, Uribe said. ``Logistically, it’s impossible″ to expect a quick reentry.

Uribe acknowledged Pepsi has known Cisneros wanted either to sell his business or take in a partner.

Pepsi offered to buy in, Uribe said. ``We told him it was worth so much. He told us, `No. It’s worth more.‴ No deal was reached.

Cisneros told the daily El Universal that Pepsi offered to buy 15 percent of his business, ``but they never made me an offer for 100 percent of the company, or even 50 percent.″

``I had the patience to talk with them to the end, until June of this year. ... Whoever says it wasn’t that way is a liar,″ he said. ``Pepsi didn’t want to get on the bus with me.″

Under the deal with Coca-Cola, it and Cisneros each will own half of the new company, Coca-Cola and Hit Bottlers of Venezuela. The new joint venture reportedly will invest $500 million in Venezuela during the next five years.

Coke reportedly is willing to make Cisneros a coveted ``anchor,″ meaning he would produce Coke for neighboring countries, too.

Pepsi filed an administrative lawsuit Tuesday claiming the deal violates Venezuela’s anti-trust laws and should be annulled.

A decision could take a month, Uribe said. Even if Pepsi loses, Uribe said filing was a necessary step toward invoking the penalty clause of the contract with Cisneros.

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