"Experience is the name everyone gives to their mistakes." -- Oscar Wilde
BREAKFAST WITH THE FOOL
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Ending weeks of maneuvering and speculation, PepsiCo (NYSE: PEP) has agreed to buy Quaker Oats (NYSE: OAT) for $13.4 billion in stock. Pepsi matched its deal of one month ago of 2.3 shares per Quaker share, valuing Quaker at $97.46 per share, based on Pepsi's Friday close at $42.38. Quaker ended Friday at $88.63. The deal follows weeks of machinations that began with a rejected Pepsi bid for Quaker, followed by interest from Coca-Cola (NYSE: KO) and France's Groupe Danone (NYSE: DA) -- reportedly at a price more than $14 billion. With the departure of Coke and Groupe Danone from negotiations, attention returned to Pepsi,whose original lower offer now looked darn good to almost-left-at-the-altar Quaker. The pact creates a food and beverage powerhouse with $25 billion in revenues and an expected $80 billion market cap. The deal gives Pepsi three key advantages: 1) Pepsi swigs Quaker Oats' Gatorade sports drink, which is tops in its market and carries a huge distribution and warehouse system that Pepsi hopes will increase efficiency and reach for its Tropicana brand; 2) Quaker's fruit, oatmeal, and granola bar and other snack products will spice Pepsi's Frito-Lay and other snack foods; 3) highly profitable Quaker brands such as Quaker Oatmeal, Life and Cap'n Crunch Cereals, Rice-A-Roni ("the San Francisco treat!"), and Aunt Jemima syrup provide hefty free cash flow. Pepsi's CEO and Chairman Robert Enrico had planned to retire, and will now speed up his move. Current President Steve Reinemund will become CEO, and Enrico will remain on the board as vice chairman. Quaker's CEO Robert Morrison, credited with Quaker's turnaround, committed to stay on for 18 months and will join Enrico on the board as a vice chairman. Indra Nooyi, Pepsi's CFO, becomes president, increasing the ranks of big-company top-level women executives. The fiancés agreed to two price conditions: If Pepsi stock drops under $40 for 10 days in the month before closing, valuing Quaker at $92 a share, Quaker may walk unless Pepsi commits to $92 a share. On the flip side, Pepsi pays no more than $105 a share, even if its stock climbs over $45.65 a share. Pepsi will issue 315 million shares to pay for the purchase, which the parties expect to be completed in the first half of 2001 -- depending on antitrust scrutiny. News to Go
Bloomberg reports the network storage giant EMC (NYSE: EMC) will introduce a product, code-named Chameleon, to compete against Network Appliance (Nasdaq: NTAP) in the small to medium-size business market for network attached storage (NAS). EMC already competes in the market for large corporation NAS, and holds 30% of the overall NAS market compared to Network Appliance's 40%, according to information technology market researcher IDC. IDC estimates that the NAS market will reach $7 billion by 2003. EMC closed Friday at $78.25, off a 52-week high of $103.94, while Network Appliance finished at $53.94, from a 52-week top of $152.75. Barron's reported in its December 4 edition that eBay (Nasdaq: EBAY) was in talks to buy uBid, a unit of CMGI (Nasdaq: CMGI). Reuters reported that an eBay source denied the story, though eBay declined official comment. According to Barron's, UBid plans to pop the champagne this week on a new consumer-to-consumer auction site, Auction Exchange, to compete with eBay. UBid has 1.5 million registered users, and its current online auction site sells mostly refurbished and closed-out consumer electronics. Bad news keeps copying at Xerox (NYSE: XRX). After Moody downgraded Xerox debt to junk-bond status on Friday, the company announced it would lay off 200 production workers -- the first time in more than a year that the company has fired union workers. The laid-off employees must work until December 22 but will receive pay and benefits through January 26. This action follows November's decision to pink-slip 350 white-collar U.S. workers, and both are separate from last March's decision to lay off 5,200 workers by April 2001. Xerox shares closed Friday at $6.25, down 56.3 cents, or 8%. Swiss drug giant Novartis (NYSE: NVS) announced positive Phase II results from its developmental leukemia drug, Glivec. Leukemia involves uncontrolled proliferation of white blood cells. Glivec selectively targets a key protein involved in leukemia, and Novartis hopes the drug will be used instead of painful bone marrow transplants or more toxic alpha interferon treatment. Significant response rates varied according to the disease stage, and ranged from 33% to 78%, with 30% showing normal blood counts. Glivec is still several years from the pharmacy shelves because it faces larger Phase III studies and application to the U.S. Food and Drug Administration for marketing approval.
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Todd Lebor provides investors a list of sources for information on the wireless industry, along with his assessment of each one's credibility.
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