PepsiCo Signs New Deal

PepsiCo (PEP) entered into an agreement with Dr Pepper Snapple Group, Inc. (DPS) to manufacture and distribute certain DPS products following the completion of acquisition of its two anchor bottlers, The Pepsi Bottling Group, Inc. (PBG) and PepsiAmericas, Inc. (PAS).

Under the terms of the agreement, DPS will receive an upfront payment of $900 million upon closing of the acquisitions. In exchange, PepsiCo will manufacture and distribute Dr Pepper and certain other DPS products in the territories where they are currently distributed by PBG and PAS. The agreement between PepsiCo and DPS will have an initial term of 20 years, with automatic 20 year renewals thereafter.

Under the new agreement, PepsiCo will distribute Dr Pepper, Crush and Schweppes brands in the U.S., Dr Pepper, Crush, Schweppes, Vernors and Sussex brands in Canada and Squirt and Canada Dry brands in Mexico.

Moreover, PepsiCo lowered the top end of its sales and profit guidance for fiscal 2009. The company now expects 2009 net revenue to rise 5% and earnings to rise 5% to 6%. Earlier, the company had expected both profit and sales to rise in the mid-to-high single digit range.

The company is ramping up its investments in developing markets like China and also in research and development efforts that are designed to speed up its offerings in the health and wellness category. PepsiCo reaffirmed its 2010 earnings guidance in the range of 11% to 13%.

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