Pepsi vs Cola

On December 4, 2000, PepsiCo, Inc. announced its merger with the Quaker Oats company in a stock-for-stock deal valuing Quaker at around $14 billion. With this merger, PepsiCo, Inc. has gain access to Gatorade and control 83.6% of the sport drink market. Analysts estimated that PepsiCo would control 33 % of the U.S noncarbonated beverage market after the Gatorade acquisition. Nevertheless, Coca Cola would only control 21 % of the market.

Problem to be solved

Historically, Coke had trounced Pepsi in terms of economic value added. Carolyn Keene (consumer analyst) wondered if the trend would be reversed given the new developments. Accordingly, she decided to perform an EVA analysis for Coca Cola and Pepsi for 2001-2003 in order to develop a view which of the two companies would be more attractive investment over the next few years.

The Coca Cola Company

Coca Cola was the largest manufacturer, distributor and marketer of soft drink and syrup in the world. It also marketed and distributed a variety of noncarbonated-beverages. In 1985, Coca Cola implemented strategy of Bottling Spinningoff so that ROE rise from 23% to 57%. Douglas Ivester instituted 7.7% price hike on syrup that resulted into a decrease in net income by 41%. After that, Douglas Daft instituted major organizational change such as cutting staff, reduce bureaucracy, and come up with new noncarbonated products. In 2000, Coca Cola annual sales were $20.5 billion and its market value was $110.1 billion. Analysts were optimistic the change in management would return the Coca Cola, Co. to its glory days.

The PepsiCo

PepsiCo sold and distributed salty and sweet snacks under the Frito-Lay trademark and manufactured concentrates of Pepsi, Mountain Dew and others. Roger Enrico (CEO, 1996-2000) have succeeded risen ROE from 17% in 1996 to 30% in 2000. In 1999, Enrico spun off Pepsi's capital-intensive bottling operations into an independent company. His action has made higher margin business, raise...