PepsiCo agrees to buy Quaker Oats for $13.4 billion in stock

NEW YORK -- PepsiCo Inc. has agreed to acquire Quaker Oats Co., the maker of Cap'n Crunch cereal, Aunt Jemima pancake products and Gatorade, in a deal worth $13.4 billion in stock.

Adding the popular Gatorade to its fleet of non-carbonated beverages, which includes Aquafina water, Lipton teas and Tropicana juices, will give PepsiCo control of the dominant brand in the $2.5 billion sports drink category.

"This will be a truly outstanding combination," Roger A. Enrico, PepsiCo chairman and chief executive officer, said in the statement. "Bringing together Quaker and PepsiCo creates a wealth of exciting growth opportunities."

PepsiCo will offer 2.3 of its shares for each Quaker share under the deal announced Monday. The boards of both companies approved the deal over the weekend, but it's still subject to regulatory approval.

When the deal closes, Enrico said Steve Reinemund, PepsiCo president and chief operating officer, will succeed him as chairman and CEO. Chief financial officer Indra Nooyi will add the title of president.

Morrison, Quaker chairman and CEO, will be a vice chairman of the combined company.

Under terms of the deal, Quaker Oats can back out if PepsiCo's stock dips below $40 a share for a period of 10 random days in the month before closing. Under this scenario, PepsiCo would have to increase the share-exchange ratio in order to keep the deal alive.

At least two PepsiCo rivals had a similar thirst to acquire Quaker Oats: the board of Coca-Cola Co. abandoned talks to buy Quaker for a reported $15.75 billion two weeks ago and French food conglomerate Danone SA backed away from a possible bid.

In the end, PepsiCo beat out its competitors with an offer that essentially mirrored the one rejected by Chicago-based Quaker roughly one month ago.

"Gatorade would do even better under PepsiCo than it has under Quaker Oats because of better marketing and distribution," said John Sicher, a veteran soft drink industry watcher who publishes Beverage Digest in New York.

The deal could raise antitrust concerns because of PepsiCo's ownership of All-Sport, a competing brand to Gatorade, albeit with much less market share. However, PepsiCo has agreed to get rid of All-Sport in order to keep the deal alive.

While picking up Gatorade was no doubt the primary thrust of this transaction for PepsiCo, analysts were quick to point out that Quaker Oats' food products, which include granola snack bars and rice cakes, nicely complement PepsiCo's line of salty snacks.