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Mergers & Acquisitions (Part 1): Should PepsiCo buy Quaker Oats?

This posting has three parts - This is part one. Part two can be found at: and part three can be found at

Subject: Mergers & Acquisitions: Should PepsiCo buy Quaker Oats?

Include the actual case to be read and the valuation calculations for the PepsiCo bid for Quaker Oats.

Additional information of relevance for the case:
a) Gatorade has approximately an 80%+ market share in sports drinks. Coke and Pepsi introduced competitors circa 1995. Coke's Power Ade brand has approximately 9-10% of the market, and Pepsi's All Sport has approximately 5-7%.

b) Wall Street consensus stand-alone earnings forecasts at the time of the case were 13% EPS growth for Pepsi through 2004 and 10% growth for Quaker

(1) Construct a first offer for PepsiCo to make to Quaker: What will you initially offer for Quaker? What should be included in the offer? What is your highest offer? Kindly show calculations. And explain rationale.


Solution Preview

Quaker Oats is a century old company having a good market share. The deal to buy Quaker would be very profitable to Pepsi Co. as well as to Quakers shareholders. Pepsi Co. should offer to the shareholders of Quaker the current
prevailing market price and half of their share of synergy benefits as an initial offer.

- Please view attachment to see the complied chart (Chart 1).

Pepsi-Quaker Synergies Valuation
Value of ...