Pepsi Giving Up Soda?

Perhaps the bluntest assessment of PepsiCo's (PEP) announcement that it will try to buy its two biggest bottlers for $6 billion comes from Bob O'Brien, a blogger for Barron's. The move, he wrote, is "the clearest indication yet that the soft drink giant has given up on the future of its flagship brands..."

That might be overstating the case. Giving up on the future of Pepsi wouldn't be a wise move for a company with "Pepsi" in its name, at least not yet. It's not as if the market for soda pop has completely collapsed, or is about to.

Just a few sentences later, O'Brien reeled it back a bit. The move, he now wrote, "can be interpreted as an indication the soft drink maker, whose sales of carbonated soft drinks declined mid-single-digits in the first quarter, doesn't hold much confidence that its flagship brands have an opportunity to recapture its standing among soft-drink customers."

That's more like it. The flagship brands have indeed been ebbing (that's true for Coca-Cola, too). They are increasingly simply a part of an ever-expanding beverage universe. So the soft-drink giants no longer derive much benefit from dealing with a separate network of big, publicly held bottlers that are interested mainly in the scale that the core brands provide, and that are hesitant, or simply not equipped, to take on products like Gatorade and VitaminWater. As Pepsi and Coke (KO) continue to introduce new products, they have to take control of their supply chains.

The current owners of those supply chains seem to think the deal with go through, and that perhaps Coke will do something similar. PepsiAmericas was trading nearly 23 percent higher early Monday. Pepsi Bottling Group was up by more than 20 percent. Both are trading above the 17 percent premium that PepsiCo offered on Sunday, indicating that the bottlers may have a good shot at a better deal. Coca-Cola Enterprises and Coca-Cola Bottling were both up by a couple of percentage points.