Essay on Pepsi In Cuba

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How attractive to PepsiCo is the proposal to buy 30% of Deltex for 1.1B pesos (US$360M)? Based on the information in the case, Pepsi could invest US$360 million in exchange for 30% equity of Deltex. So we have to calculate the value of 30% equity of Deltex. First, we calculated the discount factor by using average unlevered beta of US independent bottlers, US 10 year Treasury bond as risk free rate and assuming market risk premium 10%. We came up with 9.83% of WACC. Next, we calculated Deltex free cash flow and terminal value and then converted them into US dollar value. Now with WACC and total cash flow, we had NPV of the company. So we deducted current debt from NPV and came up with the value of US$360M investment equal to 59.99% of…show more content…
It had increased its market share to about 50% in each of its regional markets and remained highly profitable. Deltex was also one of the few Pepsi bottlers in Mexico whose share had risen since the 1960s. b. Deltex was in the most populated region in Mexico. Densely populated and allowed centralized access to a large number of potential customers. It was a market that Pepsi could not miss. c. Pepsi distribution system had become inefficiency and fragmented and lacked scale advantages. It needed to consolidate its bottling group, to build new packaging capacity and expand new territorial scope. Deltex could help Pepsi to achieve this goal. It already had 88,000 points of sales, and owned subsidiaries which manufactured plastic bottles, bottle caps, containers and packaging materials. d. Deltex’s president Adolfo Sanchez had the expertise of the industry know-how knowledge. He was a bottler by profession and knew the Mexican bottling business well. He also had developed strategies to modernize the production lines and promotional campaigns. Downsides a. Pepsi’s US$360M investment was too expensive. Based on our calculation, this investment was worth almost 60% of Deltex equity. However, in the proposal, Pepsi would only receive 30% of Deltex equity. b. Pepsi might not be able to organize and control the Deltex joint venture in the same way as were with previous two joint ventures since Sanchez wanted to remain in control of the
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