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1. As a bottler, what financing, organizational, and corporate governance relationship would you want in a joint venture with PepsiCo? What would be the key preferred financing, organization and corporate governance structure from PepsiCo’s perspective? Will the governance structure of the joint venture investment affect what PepsiCo is willing to pay? If so, how?
2. What is PepsiCo’s cost of capital assuming that capital markets are segmented (i.e., investors only have local investment opportunities, which means you can use the simple CAPM approach). Assume that the unlevered beta of the Mexican beverage industry is: 0.53. [Note that there is extra information on rates of return and prices provided in the spreadsheet]. 3. What is the value PepsiCo’s investment in GEUSA? Note that the financials provided on GEUSA are in USD millions, not in pesos. - Use 1992 as the first cash flow. Initially, there is no debt to pay off. - Profit margins in the text refer to NOPAT/ Sales. - Growth rates in text refer to growth in USD sales. - Sales (the sum of volume 8-oz. and volume of raw cases) grows 12.5% per year. - Depreciation and capital expenditures move in a trend similar to the movements from 1992-1993. - Income tax rate is 34% - ISR tax is a tax on top of an income tax (& stays constant after 1993) - GEUSA will have a constant capital structure with D/V of 40%.
4. Describe the different incentives for the PepsiCo and Deltex from an agency perspective. What are the costs and benefits for PepsiCo of forming an alliance with Deltex as opposed to contracting with Deltex?
5. Assume that Deltex is worth $500 million without the PepsiCo alliance and $750 million with the PepsiCo alliance. What is the maximum and minimum price that PepsiCo should/would pay for the 30% share? What governance factors will determine where the price will end up within that range? What other factors will also impact the price? Do you expect the final price to be closer to your estimate of the minimum or the maximum price?
