PepsiCo bids unchanged; speculation builds on Cablevision sale; Open Text details deal terms

By Cristal Cody

Tupelo, Miss., May 7 - On Thursday, PepsiCo, Inc. held firm that its bids were fair after PepsiAmericas Inc. and Pepsi Bottling Group Inc. both rejected the $6 billion combined offer, but the market still holds faith that the soft drink maker will increase the price.

Looking ahead, Cablevision Systems Corp.'s talk of a potential spinoff of its non-cable assets could signal a subsequent sale of its cable holdings, a market source said Thursday.

Also on Thursday, Open Text Corp.'s $310 million buyout of Vignette Corp. includes a $10.85 million termination fee, according to an 8-K regulatory filing with the Securities and Exchange Commission.

In other deals, a second shareholder spoke out on Thursday in support of SumTotal Systems, Inc. abandoning its planned takeover by Accel-KKR LLC for $3.80 a share and accepting the $4.50-a-share cash offer from Vista Equity Partners Fund III, LP.

Accel-KKR spokesman Joseph Kuo told Prospect News on Thursday that the firm is "declining comment" on the situation.

Moving to Wall Street, stocks took a negative turn.

The Dow Jones Industrial Average dropped 102.43 points, or 1.20%, to close at 8,409.85.

The Nasdaq Composite index fell 42.86 points, or 2.44%, to 1,716.24, while the Standard & Poor's 500 index lost 12.14 points, or 1.32%, to end at 907.39 on Thursday.

PepsiCo holds firm

On Thursday, PepsiAmericas followed Pepsi Bottling's lead from earlier in the week and rejected the buyout offer from PepsiCo.

PepsiAmericas said in a statement Thursday that a committee of eight independent directors unanimously determined the offer for $11.64 in cash and 0.223 of a share of PepsiCo stock per PepsiAmericas stock "is not acceptable."

Minneapolis-based PepsiAmericas, the world's second-largest Pepsi drink manufacturer, said PepsiCo's proposal undervalues the strategic benefits of a consolidation with the company's two largest bottlers.

PepsiCo would control about 80% of its North American beverage volume distribution through the buyouts. The company currently owns 33% of the outstanding shares of Pepsi Bottling and 43% of the outstanding shares of PepsiAmericas.

PepsiAmericas also said on Thursday that it extended its rights agreement, which was set to expire on May 20, by a year.

Somers, N.Y.-based Pepsi Bottling on Monday adopted a stockholder rights plan to protect the company and shareholders from hostile takeovers.

In a statement on Thursday, Purchase, N.Y.-based PepsiCo said the offers of cash and stock valued at $29.50 a share for Pepsi Bottling and $23.27 a share for PepsiAmericas are "full and fair."

The bid represents a premium of 17.10% over the closing price of both bottlers' stocks on April 17, the last day of trading before the proposal was announced.

PepsiCo's offer is contingent on the buyout of both bottlers.

An analyst told Prospect News that the "viewpoint hasn't changed" with expectations for PepsiCo to increase the bids.

"This is a little bit unusual because PepsiCo is a partner with these bottlers," the analyst said. "Through these stockholders rights agreements, it's difficult, if not impossible, for PepsiCo to do a tender offer. There's not going to be a hostile takeover of the companies."

PepsiCo shares fell 23 cents, or 0.46%, to close at $49.49.

Shares of PepsiAmericas rose 7 cents, or 0.28%, to close at $25.27, and Pepsi Bottling shares closed up 13 cents, or 0.41%, at $32.18 on Thursday.

Cable consolidation

Shares of Cablevision Systems jumped after the company said it may spin off its Madison Square Garden business, which includes the New York Knicks basketball team and Radio City Music Hall.

"MSG is largely a trophy asset, with extremely volatile earnings," a market source said Thursday. "We view this as a significant positive."

Market speculation grew that the company could sell its cable operations to Time Warner Cable Inc. or Comcast Corp.

Bethpage, N.Y.-based Cablevision probably does not plan to put its core cable assets up for sale anytime soon, but "separating out MSG will certainly make an acquisition easier, as it will remove the hardest-to-value asset," the market source said.

"We continue to believe Time Warner Cable would buy [Cablevision] at a notable premium whenever [the company] is put up for sale, with Comcast highly interested as well."

Cablevision operates telecommunications and media divisions in addition to the cable television services.

Cablevision shares gained 82 cents, or 4.47%, to close Thursday at $19.15.

Shares of New York-based Time Warner Cable gained $1.02, or 3.03%, to $34.73. Stock in Philadelphia-based Comcast fell 31 cents, or 1.94%, to $15.69.

Open Text buyout

Waterloo, Ont.-based corporate software company Open Text said in the SEC filing that the acquisition of Vignette has a termination date of Dec. 31, 2009.

The transaction is expected to close in the second half of the year.

The buyout of the Austin, Texas-based web content management vendor must be approved by Vignette shareholders and receive regulatory clearance from the Federal Trade Commission, the Department of Justice and the Committee on Foreign Investment in the United States, according to the SEC filing.

The deal should have few, if any, regulatory issues, an analyst told Prospect News.

"Vignette is a relic from the internet boom days," the analyst said. "They don't have to sell themselves, but if you look at the stock, something needs to be done."

Shares of Vignette rose 13 cents, or 1.07%, to close Thursday at $12.24. The stock has traded from $5.69 to $13.97 over the past year.

Under the deal's terms, Vignette shareholders will receive $8.00 in cash plus 0.1447 of an Open Text share for every Vignette share.

The proposal values Vignette at $12.70 a share with a 41% premium based on the stocks' closing prices on Tuesday.

Open Text's stock gained 34 cents, or 1.10%, to close Thursday at $31.23.

SumTotal pressure

SumTotal investor LionEye Capital Management LLC sent a letter on Thursday urging SumTotal's board to accept the revised offer from Vista Equity Partners.

Vista Equity Partners increased its offer to $4.50 a share in cash on Wednesday to acquire SumTotal, up from the $3.25-a-share cash offer made in April.

Vista Equity Partners' revised offer values the Mountain View, Calif.-based software solutions company at about $146 million.

SumTotal Systems' board on April 24 accepted a buyout offer from Menlo Park, Calif.-based private equity firm Accel-KKR.

SumTotal said in a statement Wednesday that the board will review the revised proposal from Vista Equity Partners. The private equity firm is SumTotal's largest shareholder with about 13% of outstanding shares.

Discovery Group, a Chicago-based merchant banking firm with 9.80% of SumTotal's outstanding shares, also on Wednesday urged SumTotal's board to accept the new offer.

SumTotal shares fell 11 cents, or 2.40%, to close Thursday at $4.47.

Mentioned in this article:

Cablevision Systems Corp. NYSE: CVC

Comcast Corp. Nasdaq: CMCSA

Open Text Corp. Nasdaq: OTEX

PepsiAmericas Inc. NYSE: PAS

Pepsi Bottling Group Inc. NYSE: PBG

PepsiCo, Inc. NYSE: PEP

SumTotal Systems, Inc. Nasdaq: SUMT

Time Warner Cable Inc. NYSE: TWC

Vignette Corp. Nasdaq: VIGN

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