Pepsi Case Study.doc - MERGERS AND ACQUISITIONS CASE STUDY...

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MERGERS AND ACQUISITIONS CASE STUDY THE CASE OF PEPSICO AND WHITEWAVE
The Case of PepsiCo and WhiteWave 1 Case Summary This work is an analysis of the potential acquisition of WhiteWave by PepsiCo, two US publicly-traded players of the food and beverage industry. WhiteWave is a market leader in the emergent segments of the industry, including plant-based beverages and organic dairy. The firm presented a solid growth performance over the last periods and this trend is expected to continue as consumers are shifting their preferences from unhealthy food to protein, fiber, whole grains and organic products. A combined firm would benefit from the established presence of WhiteWave in the growing segments of the industry and the scale and expertise of PepsiCo. Together, they would combine the target’s skills in developing products with high consumer loyalty and growth potential, with the acquirer’s production’s capacity, scale and financial resources. We began by analyzing both firms separately using three valuation methods: the DCF-WACC, the APV and the market multiples approach. Using these three methods, we concluded that WhiteWave has an enterprise value between $8,601 and $9,634 million and PepsiCo one of $178,833 to $196,778 million. We calculated the value of the synergies by analyzing the impact of the acquisition on the target’s costs and growth opportunities and used its cost of capital as the discount rate. The total value of synergies is between $873 million and $1,182 million, of which approximately 75% is the result of cost savings. We recommend PepsiCo to acquire WhiteWave for a share price of $46,61 in cash, representing a 12% premium over the target’s market value 1 . 1 05/11/15
The Case of PepsiCo and WhiteWave 5 Table of Contents Introduction ................................................................................................................. 7 1. Literature Review ................................................................................................ 8 1.1. Motives for Mergers and Acquisitions ............................................................................... 8 1.2. Synergies Overview ........................................................................................................... 10 1.3. Valuation Techniques ........................................................................................................ 13 1.3.1. The Discounted Cash Flow Approach ........................................................................ 14 1.3.1.1. Cost of Equity ........................................................................................................................ 14 1.3.1.2. Cost of Debt ........................................................................................................................... 15 1.3.1.3. Cost of Capital ....................................................................................................................... 15 1.3.2. WACC ........................................................................................................................ 16 1.3.3. APV ............................................................................................................................ 16 1.4. Forms of Payment ............................................................................................................. 18 2. Industry Overview ............................................................................................. 19 2.1. The Food and Beverage Industry ..................................................................................... 19 2.1.1. Industry Environment ................................................................................................. 19 2.1.2. Current Trends and Challenges ................................................................................... 20 2.1.3. Growth Opportunities ................................................................................................. 21 2.1.4. M&A in the Industry .................................................................................................. 22 2.2. The WhiteWave Foods Company ..................................................................................... 23 2.2.1. Business Profile .......................................................................................................... 23 2.2.2. Key Competitive Advantages and Challenges ............................................................ 23 2.2.3. WhiteWave and Dean Foods ....................................................................................... 24 2.2.4. Financial Profile ......................................................................................................... 25 2.2.4.1. Growth Performance ............................................................................................................. 25 2.2.4.2. Profitability Performance ...................................................................................................... 25 2.2.4.3. Management Effectiveness .................................................................................................... 26 2.2.4.4. Stock Performance ................................................................................................................. 26 2.2.4.5. Ownership and Governance Structure ................................................................................... 27 2.3. PepsiCo .............................................................................................................................. 28 2.3.1. Business Profile .......................................................................................................... 28 2.3.2. Key Competitive Advantages and Challenges ............................................................ 28 2.3.3. Financial Profile ......................................................................................................... 29 2.3.3.1. Growth Performance ............................................................................................................. 29 2.3.3.2. Profitability Performance ...................................................................................................... 29 2.3.3.3. Management Effectiveness .................................................................................................... 30 2.3.3.4. Stock Performance ................................................................................................................. 30 2.3.3.5. Ownership and Governance Structure ................................................................................... 31 2.4. Conclusions and Deal Rationale ....................................................................................... 32 3. Independent Firms’ Valuation .......................................................................... 33 3.1. Target Valuation (WhiteWave) ......................................................................................... 33 3.1.1. Comparable Companies’ Analysis .............................................................................. 33 3.1.1.1. Peer Group ............................................................................................................................. 33 3.1.1.2. Multiples and Firm Value ...................................................................................................... 34 3.1.2. Financial Projections .................................................................................................. 34 3.1.2.1. Revenues ................................................................................................................................ 35 3.1.2.2. EBITDA ................................................................................................................................ 36 3.1.2.3. CAPEX .................................................................................................................................. 37 3.1.2.4. Depreciation & Amortization ................................................................................................ 38 3.1.2.5.

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