Packaging

PepsiCo Moves to Strategically Transform North American Beverage Business; Offers to Buy Two Largest Bottlers, The Pepsi Bottling Group and PepsiAmericas

Monday 20. April 2009 - Combination would create a fully-integrated supply chain and go-to-market business model positioned to accelerate revenue growth

– Synergies are estimated to be more than $200 million per year before taxes

– Transaction is expected to be accretive to PepsiCo earnings by at least 15 cents per share when synergies are fully realized

PepsiCo (NYSE:PEP) has proposed to acquire all of the outstanding shares of common stock it does not already own in its two largest anchor bottlers, The Pepsi Bottling Group (NYSE:PBG) and PepsiAmericas (NYSE:PAS), at a value of $29.50 per share for The Pepsi Bottling Group and $23.27 per share for PepsiAmericas. This represents a premium of 17.1 percent over the closing price of the common stock of each company on April 17, 2009. Compared to the 30-day average closing prices, the offer prices represent a premium of 36 percent for PBG and 33.4 percent for PAS. PepsiCo currently owns 33% of the outstanding shares of PBG and 43% of the outstanding shares of PAS.

The offers consist of $14.75 in cash plus 0.283 shares of PepsiCo common stock for each share of PBG, and $11.64 in cash plus 0.223 shares of PepsiCo common stock for each share of PAS.

The total value of the shares PepsiCo is proposing to acquire is approximately $6 billion. The transaction is expected to be accretive to PepsiCo’s earnings by at least 15 cents per share when synergies are fully realized.

If completed, the acquisitions would create a leaner, more agile business model and provide a stronger foundation for PepsiCo’s future growth. Upon acquiring the outstanding shares of the two bottlers, PepsiCo would handle distribution of about 80 percent of its total North American beverage volume, including both its direct-store-delivery and warehouse systems.

PepsiCo Chairman and Chief Executive Officer Indra Nooyi said: “Our operating environment has evolved dramatically in the last decade. Retailers have continued to consolidate. New competitors have emerged. And non-carbonated drinks, which have different economics and different distribution systems than carbonated soft drinks, have become a much bigger factor in the industry and in our own portfolio. We believe that by reshaping our business model we can significantly improve our competitiveness and our growth prospects.

“Consolidating the bottling businesses with our franchise company would create many benefits,” Ms. Nooyi said. “We could unlock significant cost synergies, improve the speed of decision making and increase our strategic flexibility. We would be able to present a more unified face to our retail and food service customers, which would better position us to provide customized solutions, as we do at Frito-Lay, and to take to a new level our ‘Power of One’ program of bundled food and beverage offerings.”

The consolidation would create annual pre-tax synergies estimated to be more than $200 million, relating primarily to reducing redundant costs, achieving greater scale efficiencies and realizing new revenue opportunities.

Additional advantages

The consolidated business offers a range of additional potential benefits, including:

— Ability to bring product and package innovation to market more quickly
— More streamlined manufacturing and distribution systems
— Greater flexibility in how the company goes to market, by product and
channel
— Improved national account coordination
— Ability to react quickly to technological advances.

Close Working Relationships



PepsiCo’s close working relationships with both bottlers has enabled the current system to function at a high level. “We have great respect for The Pepsi Bottling Group and PepsiAmericas, which share our values and are both true operating companies,” said Ms. Nooyi. “Based on our history of successful acquisitions and our strong operating culture, we have a high degree of confidence that we would deliver a seamless integration.”

Proposal Overview

The transaction would create significant financial benefits for shareholders of all three companies. Beyond the premium PBG and PAS shareholders would receive, all shareholders involved would have the potential to benefit from increases in the value of the combined enterprise through their holding of PepsiCo’s common stock, as PepsiCo has offered 50 percent cash and 50 percent PepsiCo stock in the transaction.

PepsiCo does not foresee issues obtaining the customary regulatory approvals and the proposed acquisition is not subject to a financing contingency.

The proposals are subject to the completion of definitive merger agreements and limited confirmatory due diligence. The offers made for both PBG and PAS are cross-conditional based on the successful completion of both transactions.

For more information please access our website at: www.transactioninfo.com/pepsico.

As a large shareholder of both PBG and PAS, PepsiCo has indicated to both companies that it is committed to seeing these transactions completed and would not consider a disposition of its shares of either company.

PepsiCo expects that PBG and PAS would each rely upon a committee of independent directors to analyze PepsiCo’s proposals. As a result, there can be no assurance that either proposal will be accepted, or that if such proposals are accepted, the transactions will be consummated.

Centerview Partners and Banc of America Securities and Merrill Lynch are acting as financial advisor to PepsiCo, and Davis Polk & Wardwell is acting as legal counsel.

Following is the text of the letters PepsiCo sent on April 19 to the Boards of PBG and PAS.

Letter to the Board of PBG
April 19, 2009
Board of Directors
The Pepsi Bottling Group, Inc.
One Pepsi Way
Somers, New York 10589
Attention: Eric J. Foss, Chairman and Chief Executive Officer

Gentlemen and Ladies:



I am pleased to write on behalf of the Board of Directors of PepsiCo, Inc. to propose a business combination of PepsiCo and The Pepsi Bottling Group (PBG).

We propose to acquire all of the outstanding shares of PBG common stock not already owned by us at a value of $29.50 per share. Based on current market prices, our proposal represents a 17.1 percent premium over the closing price of the shares of PBG on April 17, 2009 and a 36.0 percent premium over the 30 day average closing price of PBG. At closing, each share of PBG common stock would be converted into $14.75 in cash plus 0.283 shares of PepsiCo common stock, which has a value of $14.75 based on the closing price of PepsiCo common stock of $52.13 on April 17, 2009.

PepsiCo is considering a combination from a strong position financially with continuing solid business fundamentals. We have a strong portfolio, a global footprint, a leadership position in growing categories and an organization committed to excellence across a range of strategic, operational and financial metrics. Our offer includes stock consideration because we believe PBG’s shareholders will benefit from PepsiCo’s long-term equity performance.

PepsiCo has a long history of delivery of industry-leading operating performance. As you know, we have made the transformation of our North American beverage business a top priority. We are excited about the transformation already underway, building on our existing portfolio of distinguished brands through innovation in product, packaging and marketing – while improving our cost structure. The good relationship with PBG has been essential to this overall effort, and we appreciate both the constructive dialogue and the alignment we have reached on our executional plans.

We believe that a combination with PBG would help PepsiCo continue this record of strong performance:

— Build upon organizational agility to manage a portfolio of brands for
growth against a backdrop of changing Liquid Refreshment Beverage
dynamics;

— Provide flexibility across go-to-market systems to optimize revenue,
productivity and costs by channel and customer;

— Facilitate rapid decision-making and speed-to-market; and

— Create a winning operating culture across the entire system. PepsiCo
and PBG both share a common heritage and value system, and we believe
a combination will build upon our recent successes to accelerate the
transformation of our beverages business.



For these reasons, the combined beverage business would enhance our “Power of One” vision and contribute to a simplified, streamlined and agile beverage system. We at PepsiCo have a tremendous amount of respect for PBG, its superb operating abilities, and its dedicated employees. PBG has built a very strong business over the last decade and is an important partner to PepsiCo.

We have also sent the Board of Directors of PepsiAmericas, Inc. an offer letter. Our willingness to proceed with this proposal is conditioned on the negotiation of definitive documentation with respect to the proposal in that letter (and the ultimate consummation of that transaction), and our willingness to proceed with the proposal in that letter is similarly conditioned on the negotiation of definitive documentation with respect to this proposal (and the ultimate consummation of this transaction).

For the avoidance of doubt, while PepsiCo is interested in this proposed transaction, as a shareholder of PBG, we would not sell or otherwise dispose of our PBG shares in, or vote our PBG shares in favor of, another transaction.

Our proposal is also subject to the negotiation of a definitive merger agreement and satisfaction of the conditions set forth therein, and our having the opportunity to conduct certain limited and confirmatory due diligence. In addition, because a portion of the aggregate merger consideration would consist of PepsiCo common stock, we would provide PBG the opportunity to conduct appropriate limited due diligence with respect to PepsiCo. We are preparing a draft merger agreement that we will provide to you shortly. Our familiarity with PBG will enable us to finalize the merger agreement in an expedited manner.

We expect that PBG will establish a special committee of directors independent from us (or rely upon the Affiliated Transaction Committee) to consider our proposal on behalf of its shareholders and to recommend to its Board of Directors whether to approve the proposal, with legal and financial advisors to assist in its review. We would welcome the opportunity to present our proposal to the special committee as soon as possible.

Because we wish to be sure that our respective shareholders are fully informed about the proposal we are making, our intention is to publicly release the text of this letter before the market opens tomorrow morning.

For the avoidance of doubt, the offer in this letter is an expression of intent only, and shall not create any legally binding obligations. No such obligations shall arise unless and until execution and delivery of mutually acceptable definitive documentation by the parties thereto.

Our entire team looks forward to working with the special committee and its legal and financial advisors to complete a transaction that is attractive to PBG’s non-PepsiCo shareholders. Should you have any questions, please contact us.

Very truly yours,
Indra K. Nooyi


Letter to the Board of PAS
April 19, 2009
Board of Directors
PepsiAmericas, Inc.
4000 RBC Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402
Attention: Robert C. Pohlad, Chairman and Chief Executive Officer

Gentlemen and Ladies:



I am pleased to write on behalf of the Board of Directors of PepsiCo, Inc. to propose a business combination of PepsiCo and PepsiAmericas.

We propose to acquire all of the outstanding shares of PepsiAmericas common stock not already owned by us at a value of $23.27 per share. Based on current market prices, our proposal represents a 17.1 percent premium over the closing price of the shares of PepsiAmericas on April 17, 2009 and a 33.4 percent premium over the 30 day average closing price of PepsiAmericas. At closing, each share of PepsiAmericas common stock would be converted into $11.64 in cash plus 0.223 shares of PepsiCo common stock, which has a value of $11.63 based on the closing price of PepsiCo common stock of $52.13 on April 17, 2009.

PepsiCo is considering a combination from a strong position financially with continuing solid business fundamentals. We have a strong portfolio, a global footprint, a leadership position in growing categories and an organization committed to excellence across a range of strategic, operational and financial metrics. Our offer includes stock consideration because we believe PepsiAmericas’ shareholders will benefit from PepsiCo’s long-term equity performance.

PepsiCo has a long history of delivery of industry-leading operating performance. As you know, we have made the transformation of our North American beverage business a top priority. We are excited about the transformation already underway, building on our existing portfolio of distinguished brands through innovation in product, packaging and marketing – while improving our cost structure. The good relationship with PepsiAmericas has been essential to this overall effort, and we appreciate both the constructive dialogue and the alignment we have reached on our executional plans.

We believe that a combination with PepsiAmericas would help PepsiCo continue this record of strong performance:

— Build upon organizational agility to manage a portfolio of brands for
growth against a backdrop of changing Liquid Refreshment Beverage
dynamics;

— Provide flexibility across go-to-market systems to optimize revenue,
productivity and costs by channel and customer;

— Facilitate rapid decision-making and speed-to-market; and

— Create a winning operating culture across the entire system. PepsiCo
and PepsiAmericas both share a common heritage and value system, and
we believe a combination will build upon our recent successes to
accelerate the transformation of our beverages business.



For these reasons, the combined beverage business would enhance our “Power of One” vision and contribute to a simplified, streamlined and agile beverage system. We at PepsiCo have a tremendous amount of respect for PepsiAmericas, its superb operating abilities, and its dedicated employees. PepsiAmericas has built a very strong business over the last decade and is an important partner to PepsiCo.

We have also sent the Board of Directors of The Pepsi Bottling Group, Inc. an offer letter. Our willingness to proceed with this proposal is conditioned on the negotiation of definitive documentation with respect to the proposal in that letter (and the ultimate consummation of that transaction), and our willingness to proceed with the proposal in that letter is similarly conditioned on the negotiation of definitive documentation with respect to this proposal (and the ultimate consummation of this transaction).

For the avoidance of doubt, while PepsiCo is interested in this proposed transaction, as a shareholder of PepsiAmericas, we would not sell or otherwise dispose of our PepsiAmericas shares in, or vote our PepsiAmericas shares in favor of, another transaction.

Our proposal is also subject to the negotiation of a definitive merger agreement and satisfaction of the conditions set forth therein, and our having the opportunity to conduct certain limited and confirmatory due diligence. In addition, because a portion of the aggregate merger consideration would consist of PepsiCo common stock, we would provide PepsiAmericas the opportunity to conduct appropriate limited due diligence with respect to PepsiCo. We are preparing a draft merger agreement that we will provide to you shortly. Our familiarity with PepsiAmericas will enable us to finalize the merger agreement in an expedited manner.

We expect that PepsiAmericas will establish a special committee of directors independent from us (or rely upon the Affiliated Transaction Committee) to consider our proposal on behalf of its shareholders and to recommend to its Board of Directors whether to approve the proposal, with legal and financial advisors to assist in its review. We would welcome the opportunity to present our proposal to the special committee as soon as possible. Our proposal is conditioned upon the approval of a majority of the directors of PepsiAmericas that are independent from us.

Because we wish to be sure that our respective shareholders are fully informed about the proposal we are making, our intention is to publicly release the text of this letter before the market opens tomorrow morning. We will also amend our Schedule 13D filing with respect to shares of PepsiAmericas.

For the avoidance of doubt, the offer in this letter is an expression of intent only, and shall not create any legally binding obligations. No such obligations shall arise unless and until execution and delivery of mutually acceptable definitive documentation by the parties thereto.

Our entire team looks forward to working with the special committee and its legal and financial advisors to complete a transaction that is attractive to PepsiAmerica’s non-PepsiCo shareholders. Should you have any questions, please contact us.

Very truly yours,
Indra K. Nooyi