PepsiCo had been assessing several acquisition options available to the company in 1999. It came up with a decision to acquire in 2000. The potential business being Quaker Oats, a company that had been considered as a viable option by PepsiCo for a long time. However, the CEO and the CFO’s commitment to keeping the value of the shares held by PepsiCo were limiting the company to give too much to acquire Quaker. The case enables the students to assess the potential benefit of PepsiCo and Quaker’s value. The aim of this case is that the students devise negotiation plans for the acquisition of Quaker.
1- Value Quaker Oats (QO) as a standalone company by using both DCF and multiples. Discuss and compare these valuations and the market price of QO as of June 2000 (i.e., prior to the rumors that it is an acquisition target).
2- Estimate the value of the synergies that can be obtained in a merger between PepsiCo and QO. Discuss the necessary steps to achieve them (i.e., sketch your PMI book).
3- What should Enrico bid for QO? Plan an acquisition strategy consistent with PepsiCo’s objectives, the values of QO and the potential synergies, and the proposed bid price.