Filed by Whitman Corporation
Pursuant to Rule 425 under the
Securities Act of 1933 and deemed
filed pursuant to Rule 14a-12 under
the Securities Exchange Act of 1934
Subject Company: PepsiAmericas, Inc.
Commission File No.: 1-13914
Transcript of Joint Conference Call of Whitman Corporation and PepsiAmericas,
Inc. at 1:00 PM EDT, August 21, 2000:
Connolly: Welcome to the Whiman/PepsiAmericas merger announcement
conference call. We believe it would be helpful to give
shareholders, investors and analysts a sense of the reasons for
the transaction and its significance going forward and that's the
purpose of today's call. I'm Chuck Connolly, Senior Vice
President of Investor Relations of Whitman Corporation. We have
with us Bruce Chelberg, Chairman and Chief Executive Officer of
Whitman Corporation and Bob Pohlad, Chairman and Chief Executive
Officer of PepsiAmericas. In a minute they'll give us their
perspectives on the transaction. You also have available for
answers to your questions, Marty Ellen, Senior Vice President and
CFO of Whitman Pepsi General and his counterpart from
PepsiAmericas, Senior Vice President and Chief Financial Officer,
John Bierbaum. Replays of this call will be available for the
next few days and the replay will begin tomorrow night, at 5:00
p.m. Eastern Standard Time, August 22. The number is (303)
590-3000 and when you call in, reference number 751687.
Before we get to the meat of today's call, I'd remind you that
any forward looking statements we might make are subject to the
appropriate safe harbor language. That is, forward looking
statements reflect management's expectations, estimates and
assumptions based on information available at the time such
statements are made. The words "anticipates," "believes,"
"estimates," "expects," "plans," "intends," "potential" and
similar expressions are intended to identify certain forward
looking statements. Forward looking statements involve risks,
uncertainties and other factors which may cause the actual
performance or achievements of the company to be materially
different from any future results, performance or achievements
expressed or implied by such forward looking statements included
in our presentation. That, of course, would include such things
as competition, product and pricing pressures, whether economic
and markets conditions, exchange rates, costs and availability of
raw materials, changing trends and consumers tastes, availability
of capital, unfavorable interest rate and currency fluctuation,
labor and employee benefit costs, and, of course, the company's
relationship and/or support programs with PepsiCo and other brand
owners. Such things could cause actual results that differ
materially from those expressed in any forward looking statements
contained in our presentations today. I might add that in the
present transaction, other uncertainties include those mentioned
in the press release. Namely, receipt of appropriate regulatory
approval, approval by shareholders of both companies and, of
course, the customary closing conditions. Such events and
uncertainties are difficult or impossible to predict accurately
and many are beyond the companies' control. I would also refer
you to the safe harbor language in the press release.
The conference call today will be filed by Whitman Corporation
with the SEC. It will be filed pursuant to Rule 425 under the
Securities Act of 1933 and it will be deemed filed pursuant to
Rule 14a-12 under the Securities Exchange Act of 1934. The
introductions and the housekeeping out of the way, let me turn
the call over to Bruce Chelberg.
Chelberg: Thanks Chuck and good afternoon everyone. Bob Pohlad and I have
been talking about this transaction for the better part of the
year. It's something we really both wanted to do because it's
absolutely the right strategic move for both companies for
reasons I'll explain in a minute. As Chuck said, we really don't
want to get too deeply into the details today. I'd only say that
this is a $600,000,000 to $700,000,000 transaction. Yes there
will be some pro forma dilution this year. But I expect this
transaction to be accretive within the next year or so, that is
in 2001 or 2002. I'll remind you that's consistent with Whitman's
policy on acquisitions. We've always said we'd accept some
short-term dilution if the deal was right for Whitman and the
shareholders. We ask that you judge this transaction in light of
its growth opportunities and the strategic objectives that we've
been talking about for more than a year.
First, we said we'd grow Whitman profitably and we're doing that.
We're adding about $600,000,000 in revenue. The new Whitman will
be a $3.2 billion dollar company in 2001. We expect EBITDA
margins of more than 15% percent. We'll be serving a market of
116 million people, 45 million in the United States, 6 million
people in the Caribbean, including Puerto Rico, and 65 million
people in Central Europe.
Second, we said we'd consolidate our position in the domestic
market and we're doing that. With this merger, we'll serve 18
states. We'll be the major Pepsi bottler in the corridor running
from the Canadian border to the Gulf of Mexico and that's very
important in today's world. Food retailers are also consolidating
rapidly. They want to talk to one supplier about marketing plans,
promotions and price. In order to get leverage with the retailers
and deliver the level of service they expect, suppliers will have
to consolidate as well. With this merger, there will be only one
major Pepsi supplier in the major markets in the central quarter
of the United States.
Third, we said we would acquire other domestic Pepsi franchises.
We're doing that by adding the Dakotas and Delta Beverages. But
more important I believe, we've increased the likelihood we'll
acquire some smaller independent franchises over the next 12 to
18 months. Our merger with PepsiAmericas demonstrates that
consolidation is a fact of life in this business. The smaller
bottlers know their franchises will never be more valuable than
they are today. Some of you know we've been talking with bottlers
in territories contiguous to Whitman Pepsi General. We also know
that some bottlers contiguous to PepsiAmericas has sent out
signals they might be interested in selling their businesses. We
sure will be talking with them. We have the resources to make
acquisitions. The net debt to capitalization ratio of the new
Whitman will be about 53% and the cash flows are strong. Frankly,
I'd be disappointed if we don't add some domestic territories in
the next year or so.
Fourth, we said we'd consider other markets outside the
continental U.S. if there was a critical mass and the potential
for growth. PepsiAmericas' Caribbean operations fit the bill.
Puerto Rico, Jamaica, the Bahamas have a combined population of 6
million people. The entire Caribbean has a population of about 32
million people. There is opportunity for growth because per
capita consumption is below the level of the United States and
Mexico. There is greater opportunity for margin improvement than
in any U.S. market as we improve the cost structure, improve
pricing and introduce efficiencies in manufacturing and
distribution. Caribbean is a stepping stone to further profitable
growth. Over the next few years, there is a likelihood we'll
expand into other markets in that part of the world including the
possibility of Cuba when it opens up. Remember, the U.S. is a
relatively mature market. A larger opportunity for profitable
growth for our company and the industry will come from outside
the continental U.S.
And fifth, the merger strengthens our partnership with PepsiCo.
We'll be a very strong number two in Pepsi's worldwide
distribution system. I expect the relationship with Pepsi, which
is already very close, to become even closer as we work together
on marketing strategies, product development, customer service
and coordination with Frito-Lay and Tropicana.
Look at the big picture. This transaction adds to Whitman's top
line and gives us new opportunities for margin improvement and
growth. The merger is a giant step forward in the consolidation
of our business which will translate into better service and a
closer relationship with our major customers and even greater
efficiencies in the sales and distribution of our products. The
merger increases the likelihood we will acquire other domestic
franchises. The merger gives us a strong presence in markets that
can grow much more rapidly then the domestic market and it
strengthens our partnership with PepsiCo. The vision we had for
Whitman when we agreed to become an anchor bottler for Pepsi is
becoming a reality.
Bob Pohlad will become CEO when the transaction is approved and I
can move on to do some things I've put off and put on hold for
the last couple of years. Last November, I said I planned on
stepping down as CEO by the end of this year. The Board started
to search and, in fact, identify some good candidates, but when
we began our negotiation with PepsiAmericas, the Board agreed
that Bob Pohlad would be the right man to succeed me. Bob's had
24 years experience in the business. He's made the Dakotas one of
the most efficient and profitable franchises in the Pepsi system.
He's improved Delta's performance and he has the vision to
recognize the opportunities outside the continental U.S. Whitman
is fortunate to have as its next CEO someone who knows how to run
the business and to grow the business. And I should add, we are
fortunate to have someone who believes strongly in the future of
this company. Bob and the Pohlad family will make a significant
personal investment in Whitman. Bob's putting his money where his
mouth is and he's given himself every incentive to succeed.
Bob will have a lot on his plate in the next year or two as he
completes the integration of the Heartland territories we
acquired from Pepsi last year, integrates the Pepsi Americas'
territories and gets our operations in Central Europe and the
Caribbean on solid footing. Therefore, the Board asks Archie
Dykes, who has been a director for 15 years to serve as
Non-Executive Chairman for a period of time. Archie is a solid,
no-nonsense executive with a world of business experience. He'll
provide continuity with the Board and some of our outside
constituencies, while Bob focuses his energy on the operations of
the company and the goals that we've set.
That's the overview. Whitman continues to evolve according to
plan. We've done well by our shareholders over the past decade
following our plan and I expect that by sticking to our plan,
we'll continue to create value for our shareholders in the years
to come. Now I'd like to turn the phone over to Bob Pohlad.
Pohlad: Thanks Bruce. Let me begin this morning by adding my welcome to
all of you joining us on the call and listening on the web. I am
excited about the merger and the opportunity to lead the new
company. But before I share my thoughts on that opportunity, I
would like to give you my perspective on the merger representing
my family as PepsiAmericas largest shareholder.
This merger is significant, strategic and good for PepsiAmericas.
For those of you who may not know, PepsiAmericas was formed about
a year ago to combine three Pepsi bottling companies in which
Pohlad Companies had a substantial interest: Dakota Beverage,
privately held by my family for many years, Delta Beverage, also
privately held, with a significant ownership by Pohlad Companies,
and Pepsi Cola Bottling Company of Puerto Rico, which was
publicly traded and in which we became the largest shareholder
about two years ago. We combined the three companies because we
believe in the opportunity to leverage scale for greater
profitability, grow through expansion in the U.S. and
particularly in attractive markets, such as the Caribbean, and,
third, to lead consolidation in our industry as a Pepsi anchor
bottler. With the roll-up of these three companies, PepsiAmericas
became the third largest Pepsi anchor bottler.
I tell you all this because that strategic vision for
PepsiAmericas is consistent, if not identical, with Whitman.
Especially since Whitman evolved from a holding company with
bottling interests to a pure Pepsi bottler. That shared strategy
is to lead industry consolidation as a Pepsi anchor bottler, and
drive the benefits of scale by accelerating growth to produce
increased value for shareholders.
Our proposed merger with Whitman makes sense for PepsiAmericas
because it takes the ability to lead consolidation and support
growth to a whole new level. We'll be able to identify and
finance many more opportunities from this larger base than as a
separate and smaller company. The merger is also a good fit for
PepsiAmericas, a good geographic fit. Our territories are
complimentary with very little overlap and an excellent cultural
fit. Both companies are located primarily in the Midwest, and
have a long history as part of the Pepsi system. So we expect a
quick and smooth integration. The merger also provides access to
a more efficient capital base with increased liquidity and a
better balance sheet which increases our debt capacity and lowers
cost of debt. For PepsiAmericas shareholders, the merger also
provides more consistent earning power and an opportunity to
participate in future EBITDA upside through ownership in the
earnout option and additional Whitman shares as Dakota Holdings
is going to do.
Looking forward as Bruce noted, there are very exciting
opportunities for growth in a number of areas. First, certainly
our U.S. geography. Second, we see substantial opportunities for
growth in less mature international markets where the per capita
consumption is low relative to the U.S., and where demographic
trends and economic developments favor high growth in beverage
consumption. I'm speaking of markets such as Central Europe where
Whitman is focused and the Caribbean where PepsiAmericas has
focused its attention. There is also considerable opportunity to
improve margins and returns in these international markets as
both companies have begun to demonstrate. We certainly expect to
continue this progress. Finally, we see better opportunities as a
combined company to meet consolidation in adjacent and expansion
markets. While we cannot predict the pace of consolidation, we
are confident it will continue and hopefully accelerate. It is
interesting, years ago in the wake of the Coke enterprise of
Johnson-Coke merger, how consolidation in their system
accelerated.
Let me comment briefly on PepsiAmericas profitability since many
of you are not familiar with the company. In the year 2000, we
expect to achieve about $65,000,000 in EBITDA representing a 30%
improvement from 1999 results. This EBITDA is also the base level
from which the earnout targets were set.
Now that the agreement is signed and announced, our real work of
course begins. For the next few weeks and months, we will be
developing our integration plan, building the management team,
vetting the strengths and talents of both the PepsiAmericas and
Whitman organizations, identifying detailed synergies and
formulating more specific strategies for our future. We plan to
share more information with you as it is developed. Incidentally,
we expect to have the S-4 completed and available by late October
or early November. I look forward to meeting all of you soon and
communicating regularly thereafter on our plans and progress. Now
all of us, Bruce, Marty, John and myself would be happy to take
your questions. Please bear in mind that we are not prepared
today to discuss the management team, or the dollar amount of
expected synergy, but we will be providing that information in
the near future. Keep in mind also, that while there definitely
are synergies in the combination, and they will be pivotal in
making the merger accretive in 2001, the focus of the merger is
on accelerating growth. With that, we will turn the call back
over to the conference call administrator who will tell
participants how to enter the queue for questions. Thank you.
Operator: Thank you sir. Ladies and Gentlemen, at this time we will begin
the question and answer session. If you have a question, please
press * followed by the 1 on your push button phone. If you would
like to decline from the polling process, please press * followed
by the 2. You will hear a 3 tone prompt acknowledging your
selection. Your questions will be polled in the order they are
received. If you are using speaker equipment, you will need to
lift the handset before pressing the numbers. One moment please
for our first question.
Mr. George Thompson, please respond with your company affiliation
followed by your question.
Thompson: Prudential Securities. Bob, I wonder if you could talk a little
bit about two topics: (1) if you could give us an idea of what
the pricing environment has been in the three different areas
that you operate in, how that's developed this year, and what the
impact has been on volume, and (2) could you talk a bit about
your mix of cold drink relative to the total with respect to
Whitman's, whether you are ahead, behind, that sort of thing.
Pohlad: Sure, first, in terms of the pricing that we're seeing this year,
in our three different markets, both our Dakota market and our
Delta market are pretty similarly in that regard in that pricing,
as is the case for Whitman and across the country, has certainly
moved up over the past year. That has had an impact on volume. In
our Dakota territory, they actually started getting a feeling or
seeing the effects of higher prices a little bit earlier than
much of the country, and consequently, their volume is rebounding
a little bit faster. Delta, on the other hand, which is for the
most part a lower share market, especially compared to Dakota, is
still in the process of going through feeling the effects of that
higher price. While it certainly has benefits in terms of
margins, it has hurt volume. We expect that to turn around as we
get towards the end of this year and into next year certainly. In
Puerto Rico, it's a different story. Puerto Rico is right now
experiencing very competitive pricing, different from the balance
of certainly the United States and, I think, much of the world.
On the other hand, our initiatives in Puerto Rico in terms of our
go to market strategies, cold bottle, general trades, that kind
of thing, we believe should inflate the pricing issues that we
are seeing, and as you all know, try to predict when the effects
of a price war are going to end are futile. We simply have to be
in a position to do the best we can in terms of efficiency of
operation, and the other marketing strategies that I mentioned we
have available to us.
In terms of cold drink, we are on the same kind of program that
Whitman has been on over the past several years, so we've made
significant and higher investments over that period of time, we
are seeing growth in that channel, strong growth in that channel,
and I think our development, certainly in our Dakota territories,
is similarly high compared to the development that Whitman is
seeing being the Heartland Pepsi bottlers that they are. In
Delta, investment continues to be made and while we have plenty
of room to grow in the Delta territory, progress is being
made.
Thompson: Alright. Thank you.
Operator: Mr. Manny Goldman of ING Bearings. Please state your company name
followed with your question.
Goldman: I am with that company, ING Bearings. Good morning or good
afternoon. Just a couple of questions if I might. The first
relates to unit volume. How much percentage-wise or however you
want to look at it, what percent of the total Pepsi system will
be accounted for by combining the two companies as opposed to one
and the second totally different question relates to Puerto Rico
and what's happened over the last few years there has certainly
been some dynamics down there in terms of the Coke versus Pepsi
competitive type environment, and within Puerto Rico, if we look
at the share of Pepsi versus Coke, what does that look like now
and how has that changed over the last few years, if you could
just address those two things, I would be appreciative.
Pohlad: Sir, in terms of the combined Whitman and PepsiAmericas shares of
the domestic Pepsi business, it will be about 21%, currently
about a little over 17% for Whitman, and about 3% for
PepsiAmericas. In terms of the share change in Puerto Rico
relative to Coke, Pepsi has for many years enjoyed a share
advantage down there over the last, I suppose 3 to 5 years, with
the new competitor down there and with the problems that Pepsi
Puerto Rico has experienced over the last couple of years that
share advantage has been lost. Now we have about 46% of the
market down there, compared to 48% for Coke, and I think that's
about it.
Goldman: That was it.
Pohlad: I hope I answered your question.
Goldman: Yes, thank you.
Operator: Mr. Martin Rowe. Please state your company name followed by your
question.
Rowe: Credit Suisse First Boston. Firstly, Bruce congratulations on I
think staying true to your strategy in the course, and clearly
over the, you know, the period that you've been CEO you've
created value and I certainly wish you well as you go forward in
your pursuits. The question I have Bob of you is, maybe you could
give us your take on the Central European properties of Whitman,
which you know, have had some difficulties in sort of breaking
into, you know, profitability and what you think the
opportunities are there and how soon do you think you can mine
those opportunities to create profitable central European
operations.
Pohlad: I know the Whitman's made a lot of progress over in Central
Europe just in the last 12 to 24 months, and I think that
everybody expects that to continue. I think the challenge over
there is the same as we have in the Caribbean. I mean, over the
next short term, we ought to in this combined company be able to
continue to look to domestic volume growth for a lot of the
profit phase and even certainly for a healthy portion of the
volume growth. Long-term, of course, the whole strategy in terms
of reaching out to the international market is to be able to look
to those markets for a greater share of the growth going forward.
What's necessary in the short term, and what we as a management
team have to be prepared to do is to have both the ability, the
talent, the time and the investment necessary to build
infrastructure there to be able to get at that development, that
longer term growth rate after we have the system in place. That's
our strategy.
Rowe: When you look at the domestic operations, and I know you won't
talk about the synergies, but you know, can you give us a sense
as to you know, without putting any numbers on it, where some of
those synergies might be, you know, in combining, you know, the
domestic operations that you have with the Whitman operations.
Pohlad: Sure, you know, I don't want to get too far into it. It's too
early to do that, but, you know, we're in the same business, we
don't overlap markets, so in terms of our field operations,
there's likely to be very little, if any change at all. On the
other hand, there certainly is two corporate organizations, and
the blending of those two is where the bulk of the synergies will
come from.
Rowe: Thank you very much.
Operator: Ms. Caroline Webbie. Please state your company name followed by
your question.
Webbie: Hi there, I'm with UBS Warburg. I just have a couple of questions
regarding what, I missed a little bit, but I heard some comment
about market shares being 46% and I'm thinking that's Puerto
Rico. I'm wondering if you can give an average of what your
market shares look like in your markets, or just address the
biggest ones versus Coke. If you could touch on which other
brands you carry - you have Dr Pepper, I know you got 7-Up
recently in, I think, Puerto Rico. If you could also touch in
general on non-carbs and how much you've done in that area, that
would be great.
Pohlad: The market share, the 46% was from Puerto Rico, you are right
about that. In general, Whitman certainly once again, being in
Pepsi Heartland has, for the most part, at the very least, parity
market share and in many cases, share advantage. I think maybe we
only have one market where they're not in one of those two
positions. In our Dakota territory we also enjoy share advantage,
both on a corporate Pepsi standpoint and a total company
standpoint versus our competitor. In Delta, that is a little bit
kind of the opposite. We operate in low share markets down there.
All brands in Delta is about a 20 share. Dakota enjoys about a 50
share. So you can see that on Dakota territory, they are similar
to Whitman's. The opportunity for growth we believe, of course in
Delta, should by virtue of its market share be greater. Besides
the Pepsi brands, our product portfolio includes really all
carbonated categories you can think of, everything from water to
All Sport. Dr Pepper and 7-Up we carry both those. In the
PepsiAmericas system, we have 7-Up in practically all of our
territories. We have very little Dr Pepper, just some up in our
Dakota territories, and although I know Whitman offers all those
brands, I don't know - I'll look to somebody else to fill in that
blank for me.
Webbie: And Bob, finally just in your territories, who do you compete
with? Is it generally CCE?
Pohlad: Yes it is.
Webbie: Thank you.
Operator: Wayne Dow. Please state your company name followed by your
question.
Dow: Salomon Brothers Asset Management. I have two questions. The
first question is regarding the Delta Beverage which is part of
PepsiAmericas I believe have some public bonds. Do those need to
be refinanced as they may constitute a - they do have a change in
control clause?
Bierbaum: Yes, this is John Bierbaum. There is a change of control put that
will offer a premium of 101 and that will be offered to the
shareholders at the completion of the merger. It's too early to
tell whether there will be any reason to refinance the entire
offering. There is the ability to call the bonds later in the
year, but that analysis hasn't been performed. It's safe to say
that the Whitman balance sheet provides plenty of opportunity for
effective financing should that be advantageous.
Dow: Okay. A second question I have is on, I believe both companies
have some insider holdings, can you give me an idea in each
company, what are some of the insider holdings are and whether
they are, I'm assuming they approved of the merger.
Connolly: Can you speak up, we can barely hear you.
Dow: Oh, I'm sorry. Hello. Is that better. I just want to know if each
company has any significant insider holding, and if they are,
what is the percentage and I'm assuming they have all approved of
the merger.
Bierbaum: This is John Bierbaum again. As you know, the Pohlad family has
significant holdings in PepsiAmericas and they are obviously in
favor of this as is Pepsi-Cola in both companies. Beyond that,
there is nothing that reaches the level of significance that I
think you are thinking about.
Dow: Okay. So, in the Whitman company, there is no significant
holding?
Bierbaum: That is correct.
Chelberg: Just so it's clear, in Whitman of course, Pepsi-Cola Company owns
slightly less than 40% and there is one investment group that
filed a 13D and owns more than 5%, but there is no insider
holding by management of any significance.
Dow: Okay, and how much does the Pohlad family own in PepsiAmericas.
What is the percentage there?
Bierbaum: That interest is currently at 45%.
Dow: Okay. And what percentage of shareholder approval is usually
needed to approve the merger? You said they would be going
through a shareholder vote and all that.
Chelberg: A simple majority.
Dow: Okay. And the other criteria that you have to go through is
Hart-Scott-Rodino Act.
Chelberg: That's correct.
Dow: That's correct. Ok. Ok, thank you very much
Operator: Mr. Doug Wayne. Please state your company name followed by your
question.
Wayne: Good afternoon. Merrill Lynch. Just to follow-up on some of the
numbers that you have given. I think you had mentioned that
either dollar with $65,000,000 in 2000 for the acquired
territories, and, correct me if I'm wrong, but you said up 30%,
which is a strong number, so if that's the right number, can you
put some color behind your strong EBITDA growth this year, and
what you think opportunities are going in the future, you know,
ex-synergies, ex-acquisition just as a company, what was your
opportunity for EBITDA margin expansion, and then if you could
give us some top line trends on volume growth and pricing trends
in the acquired territories of the United States.
Pohlad: Yes, Doug, thanks. I'll start out and then let John pick up on
the last part of the question. We do have the 30% increase and
that is strong. Certainly, we are, you know, our Caribbean
operations are driving a lot of that due to the acquisition of
Jamaica and the improvements that we're seeing in Puerto Rico. In
terms of the margin improvement itself.
Bierbaum: If you reference the 10-Q that was filed for PepsiAmericas for
the first six months, that will contain some figures for you
relative to the average price increase and volume changes. In
Puerto Rico, our volume was aided by the fact that we purchased
the 7-Up brand and some related brands in mid-year 1999, as Bob
had mentioned earlier, volume is down slightly in the United
States, but it is more of an offset by pricing increases. As the
additional improvement at the margin line really comes from cost
savings in Puerto Rico.
Wayne: And I assume the going forward the big drivers of EBITDA margin
expansion besides further pricing if that's the case, the
scenario that continues, would be outside the United States, or
it is some opportunity inside the U.S., and if so, where.
Bierbaum: Well, there is certainly opportunity for growth in the United
States, particularly as you see in 2000 with volume being
slightly soft, you'd expect that to recover as people get used to
the pricing. As Bruce mentioned earlier, we would hope to see
some domestic acquisitions happen that will add to the volume
base, and of course, in the Caribbean, we continue to pursue
acquisitions there.
Wayne: Okay. Thank you.
Operator: Mr. Andrew Conway. Please state your company name followed by
your question.
Conway: Andrew Conway. Morgan Stanley. Bob, or Marty, if you have a pro
forma return on invested capital number for year-end 1999 I'll
value that, and then, Bob, if you could please talk a little bit
about your organization in terms of how you see the industry,
given your 20+ years in the business, given that we're in a
little bit of a new pricing volume environment, could you give us
a little update in your business of how trends have continued
through the key summer months now, but also longer term, how do
you see volume and pricing working through the soft drink
industry the next 3 to 5 years, how long do you see consumers
adjusting and thirdly, please up with the great many Pepsi
initiatives against the brand as we get through the summer into
the fall, whether it be Dole, Slice, how is your organization
prepared?
Ellen: Andrew, it's Marty. Let me take the ROIC question. I recall that
Whitman in 1999 was about 7% on our traditional corporate turn on
invested capital basis. Pro forma we think that will dilute a
little bit by say 90 basis points. However, our view of 2000 pro
forma - that was 1999 - 2000 pro formas we can recover all of
that and a little more being the low 7s. With north of 70, that
is 75 basis points improvement each year thereafter.
Andrew, I wanted to touch on the other two pieces, in terms of,
you know, the pricing, the kind of activity or strategy that
we're seeing now and how that looks to shape things going forward
are clearly we believe that the price increases that the industry
is seeing now are good for the industry. As we look forward, we
believe the consumers will understand those pricing moves and
begin to respond and return to the consumption levels that we've
seen in the past. We do expect that if pricing holds, that both
of the major companies, Pepsi and Coca-Cola, will have to look
more to marketing, more to different initiatives.
I think the third part of your question the number of different
offerings that you are seeing coming out of those of Pepsi system
are evidence of that. We think it is a very, very positive move
for the industry, and we are going to be taking advantage of
those where they make sense. We are in the PepsiAmericas
territory, the largest 7-Up bottler, so Sierra Mist, at this
point, probably isn't an opportunity in those territories. But in
all cases, whether it is water or fruit or any of the other
categories, we will be a player and it will be our strategy to be
a category leader in all of our markets. You know, whatever those
initiatives are.
Operator: Mr. Ron Anderson, please state your company name followed by your
question.
Anderson: Yes. American Express, good afternoon. I have a question. Has
Whitman Corp. spoken to Moody's and/or S&P, and have they given
any indication on a pro forma basis what might happen to your
credit ratings, if anything?
Ellen: Ron, we will be speaking with them later this afternoon.
Anderson: Thank you.
Operator: Mr. Doug Wayne, please state your company name followed by your
question.
Wayne: Hi, quick follow-up, thanks. Looking more at 2001, what kind of
volume and pricing assumptions should we assume for the acquired
territory in 2001 in the U.S.?
Bierbaum: We go through an annual planning process with PepsiCola to
compare programs and plans for the future and that exercise
really hasn't, we haven't gotten very deep into that, so it's
really premature to give you those kinds of targets.
Wayne: Nothing in the back of your mind?
Connolly: Doug, can you speak up a bit?
Wayne: I think you had mentioned improving volume trends. Could you just
qualify that, do you just sort of have a range of volume trends
and then, I don't if you have mentioned this in your 10-Q, I do
not have it in front of me, but where has pricing been, total
revenue per case been trending this year and where do you see
that going next year, maybe just directionally if not an absolute
number.
Ellen: Sure. Volume, Doug, like I said, we don't want to commit to any
specific number now. But I would be disappointed if we can't
expect next year somewhere in the 2-3% range for volume increase.
In terms of, pricing is kind of the same thing, kind of about
same range, maybe a bit stronger, but about the same.
Wayne: Okay. Do you have the pricing revenue per case figures, sort of
what your expectation is in 2000?
Pohlad: I don't have them right now. Sorry.
Wayne: Okay. Thanks.
Operator: Mr. Mark Schwegberg, please state your company name followed by
your question.
Schwegberg: Solomon, Smith, Barney. I wonder, Bob, if we could speak a little
bit, I know you don't want to discuss certain synergies, but
within the PepsiAmericas entity preceding this deal, if you could
speak a little bit about priorities in terms of source of margin
expansion, specifically, for the Delta Beverage Group.
Ellen: Could you ask your question one more time please?
Schwegberg: Sure. Obviously, given the lower share of Delta Beverage Group
than Dakota, there is a lower margin business there, I wonder if
you could speak a little bit about how you guys are thinking
about getting incremental margin there. You spoke earlier a
little bit about cold channels, but I wonder if you could put
some additional flesh on the thinking of margin expansion
opportunities for Delta.
Pohlad: Sure. Over the next couple of years, Delta should be in a
position to benefit these two things: (1) a relatively stronger
position in the food storage channel, and (2) the investment
that's been made over, really probably in about year 4 or 5 now,
of cold bottle and marketing equipment investments. The
combination of those two things, given the share position that
Delta is starting from, should allow it to grow at a rate a bit
healthier than its territory, like Dakota Beverage.
Schwegberg: Thank you.
Operator: Thank you, gentlemen. There are no further questions at this
time. Please continue.
Connolly: Ladies and gentlemen, thank you very much for joining us on the
call today. As we said earlier, the replay will be available
beginning at 5:00 p.m. tomorrow night. The number is (303)
590-3000, reference 751687. If you want to follow up on anything
that we raised today, please call me at Whitman or John Bierbaum
at PepsiAmericas. Again, thank you, and we will be talking to you
all later.
Operator: Thank you, gentlemen. Ladies and gentlemen, once again this
concludes the Whitman/PepsiAmericas merger announcement
conference call. If you would like to listen to a replay of
today's conference, please dial (303) 590-3000, followed by pass
code 751687. Once again, if you would like to listen to a replay
of today's conference, please dial (303) 590-3000, followed by
pass code 751687. Thank you for participating. You may now
disconnect.