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Source: Quaker Rejects Pepsi Offer

Updated:
NEW YORK (AP) — Shares of Quaker Oats Co. jumped 6 percent Friday after a source said the company rejected a $13.7 billion takeover bid from soda and snacks maker PepsiCo Inc.

PepsiCo declined to raise its all-stock bid for Quaker, whose Gatorade sports drink brand would be a powerful addition to the nation's second biggest soft drink company, said the source familiar with the discussions who spoke on condition of anonymity.

But some analysts say Quaker shareholders will demand an explanation from the Chicago-based food company about why it rejected an offer that represented a 25 percent premium over Quaker's closing stock price on Thursday.

Neither PepsiCo, based in Purchase, N.Y., nor Quaker would comment Thursday night.

Pepsi shares fell $1.69, or 3.6 percent, to $45.44 in midday trading on the New York Stock Exchange, where Quaker shares were up $5.19 to $87.44.

The source said PepsiCo offered to exchange 2.2 of its shares for each Quaker share. That would be worth about $103.69 at Thursday's closing PepsiCo price of $47.13 a share.

Some analysts said the failed bid could start a bidding war for Quaker and its much sought-after Gatorade sports drink brand.

``This will flush any potential bidders out of the bushes pretty quickly,'' said John O'Neil, an analyst for Paine Webber.

Quaker may be best known for its flagship oatmeal brand. The company also makes Rice-a-Roni and Cap'n Crunch cereal.

But its most attractive holding is Gatorade, which posted sales of $1.8 billion last year and accounts for more than 80 percent of the sports drink market. When Quaker acquired the brand in 1984, it made $100 million.

PepsiCo's All-Sport and Coca-Cola Co.'s Powerade brands are distant rivals to Gatorade.

PepsiCo owns the Pepsi, Diet Pepsi and Mountain Dew soft drinks, but has shown an interest in expanding its non-carbonated drink portfolio which currently includes Aquafina water, Lipton teas, Frappucino coffees and Tropicana juices.

Non-carbonated alternatives to traditional sodas have been the growth leaders in the soft drink industry.

Earlier in the week, PepsiCo agreed to buy South Beach Beverage Co., which sells non-carbonated fruit and dairy drinks and teas laced with gingko, bee pollen and other herbs or nutrients. Terms of the sale were not disclosed, but two sources familiar with the transaction who spoke on condition of anonymity said the price was $370 million in cash.

PepsiCo also owns Frito-Lay Inc., the nation's biggest maker of salty snacks including Lay's and Doritos chips and Rold Gold pretzels.

Quaker Oats could find itself a target of other food and beverage companies, such as Coca-Cola Co., Nestle SA and Danone SA.

Tom Pirko, who heads the beverage consulting firm Bevmark in Santa Barbara, Calif., said Thursday that PepsiCo and Quaker may also find a way to renew their talks.

``I don't think the romance is over,'' he said.
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