Recommendation On Pepsico 's Bid For Quaker Oats

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PepsiCo Inc.
To: Board of Directors, PepsiCo Inc.
From: Adil Shenvi Sankow
Date: 12/31/2000
Re: Recommendation on PepsiCo’s bid for Quaker Oats
The purpose of this memorandum is to provide the Board of Directors of PepsiCo Inc. with analysis and recommendations on how much PepsiCo should pay per share for the acquisition of Quaker Oats and the best way to carry out the transaction.

Overview of PepsiCo Inc.
Throughout its history, PepsiCo has developed its business with aggressive acquisitions & mergers with companies in different industries. It entered the snack food industry by acquiring Frito Lay in 1968 and the branded juice industry by acquiring Tropicana in 1998. Currently, the company is amongst the world leaders
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By the end of year 2000 PepsiCo had recorded a net sales of $20,438 million - 0.34% increase over its previous year sales. Although there is a negligible increase in sales in the year 2000, company is still able to achieve an improvement in net profit of 6.48% by reducing the cost of goods sold and increasing its operational efficiency. The improvement in net income is partly due to company 's reduced depreciation amount in the year 2000. PepsiCo 's gross profit margin and net profit margin in the year 2000 is high - 65.16% and 10.68% respectively, indicating greater profitability of the company. Both the gross profit and net profit margin have improved in 1997 and have been stable since then. Although Operating margin of PepsiCo has improved by 3 percentage points in 1997, it hasn’t changed much since then. ROA and ROE have been 11.90% and 30.11% respectively. In 2000 COGS/Sales is 34.84% and SG&A/Sales is 44.68%. Although COGS has been decreasing over last five years, SG&A/Sales has been constant.

Quaker Oat’s business and financial performance in the recent past
Quaker Oat 's business can be broadly classified into two segments - Foods and Beverages. Quaker Oats has a worldwide presence, but its major sales come from North American market. By the end of 1999 Quaker Oats had annual sales of around $4.72 billion. 61% of its total sales came from Foods and remaining 39% came from Beverages. Although the Foods
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