Make That a Pepsi Without the Fizz

The Pepsi bottlers being acquired today might be more likely to say, "Make that a Dom Perignon, please!" Back in April, we should assume that Pepsi's $6 billion bid for the companies represented the best estimates of fundamental asset values, cost savings, volume growth, and some padding to make the deal palatable. Today, that number becomes $7.8 billion.

The fundamental problem for both Coke and Pepsi is the secular low case volume growth for carbonated colas, and for carbonated beverages in general. Looking out into the future, there are clouds on the horizon when pundits like Dr. David Kessler talk about making sugar the "new tobacco." That can't be good for for Coke or Pepsi, even if it might be good for American waistlines.

The distributors clearly have a better view of the endgame, and they enjoy a grand payday. Interestingly, the cost savings from the acquisition were stated as $200 million in April, whereas today they are $300 million by 2012. Perhaps the April numbers were disinformation. Either we found $100 million by definition, or it was conjured out of the air. The latter is more likely.