Coke bottler says no buyout ahead; Broadcom gets bidding room; Atlas deal needs regulatory OK

By Cristal Cody

Tupelo, Miss., April 28 - Coca-Cola Co.'s largest bottler, Coca-Cola Enterprises Inc., on Tuesday rejected suggestions that it might follow its rival's potential buyout steps, but analysts say a takeover is the elephant in the room that won't leave.

Meanwhile, Broadcom Corp. may have more reason now to increase its $764 million bid for Emulex Corp.

Broadcom's litigation settlement with rival Qualcomm Inc. should "make it more comfortable with increasing its offer price for Emulex," an analyst said Tuesday.

Also on Tuesday, a representative with Atlas America, Inc. and Atlas Energy Resources, LLC told Prospect News that the companies only need regulatory clearance through its notification under the Hart-Scott-Rodino Act.

On Wall Street, stocks fell for a second day Tuesday.

The Dow Jones Industrial Average declined 8.05 points, or 0.10%, to close at 8,016.95.

The Standard & Poor's 500 index dropped 2.35 points, or 0.27%, to 855.16, while the Nasdaq Composite index lost 5.60 points, or 0.33%, to end at 1,673.81.

Coke, Pepsi challenge

Speculation that Coca-Cola will follow PepsiCo Inc.'s lead continues a week after PepsiCo launched an unsolicited bid for its largest bottlers, Pepsi Bottling Group Inc. and PepsiAmericas Inc.

Coca-Cola owns 35% of the outstanding shares of Coca-Cola Enterprises.

On Tuesday, Coca-Cola Enterprises chief executive officer John Brock said on the earnings conference call that the bottler continues to work well with Coca-Cola.

The company reported a higher first-quarter net income of $61 million, or 13 cents a share, compared to $8 million, or 2 cents a share, a year ago.

"We don't believe there will be necessarily any competitive advantages from this approach our principal competitor is taking," Brock said. "We're going ... to keep working hand in hand with the Coca-Cola Co."

Erin Smith, an analyst with Argus Research Co., told Prospect News in an interview Tuesday that the bottler's improved relationship with Coca-Cola helps in deflecting takeover rumors.

"In years past, the relationship with Coke hadn't been as strong," she said. "They seem to be very optimistic their relationship with Coke is going well and [Coke believes] the current strategy of selling to their bottlers is the right way for them now."

But, it's "difficult to tell," Smith said. "If there were any consideration, they would be very careful to not disclose any of it, more so than if Pepsi had not announced their plans."

Marc Greenberg, an analyst with Deutsche Bank Securities Inc., said in a research note released Tuesday to Prospect News that Coca-Cola is "not catching that Pepsi consolidation feeling" but it should.

"We believe [PepsiCo's] approach here presents the best opportunity to take out cost and optimize distribution," he said. "Owing to Pepsi's move here, Coke must defend a system and partner it has long found challenging. The longer [Coca-Cola] waits, the more it may cost."

Analysts expect PepsiCo to make a second, higher bid after the company offered $6 billion in cash and stock on April 20 to acquire the bottlers.

Purchase, N.Y.-based PepsiCo currently owns 33% of Somers, N.Y.-based Pepsi Bottling Group and 43% of Minneapolis-based PepsiAmericas.

PepsiCo's offer includes $14.75 in cash plus 0.283 of a share of PepsiCo for each share of Pepsi Bottling Group and $11.64 in cash plus 0.223 of a share of PepsiCo for each share of PepsiAmericas.

Shares of Pepsi Bottling Group rose 20 cents, or 0.64%, to $31.31, and PepsiAmericas' stock closed up 7 cents, or 0.28%, at $24.73 on Tuesday.

PepsiCo's stock added 93 cents, or 1.89%, to close at $50.04.

Shares of Atlanta-based Coca-Cola Enterprises gained 77 cents, or 5.09%, to close at $15.90 on Tuesday.

Atlanta-based Coca-Cola's stock rose 4 cents, or 0.09%, to close at $42.28.

Higher Emulex bid?

In the settlement announced Sunday, cell phone chip maker Qualcomm agreed to pay Broadcom $891 million over four years to end the litigation over unfair trade practices.

Irvine, Calif.-based Broadcom, which makes semiconductor chips for communications equipment, made its hostile offer for Emulex on April 21 for $9.25 a share in cash.

"We believe that Broadcom would likely be willing to pay a strategic premium for Emulex," an analyst said Tuesday. "The merger of Broadcom and Emulex makes strong strategic sense. We believe that the transaction is driven by revenue rather than cost synergies."

Costa Mesa, Calif.-based Emulex, which makes data networking storage products, has said it is reviewing the proposal.

Emulex shares rose 9 cents, or 0.87%, to close at $10.45 on Tuesday.

Broadcom's stock lost $1.21, or 4.96%, to end at $23.17.

Shares of San Diego-based Qualcomm fell 93 cents, or 2.15%, to close at $42.24.

Atlas awaits review

On Monday, Atlas America said it will buy the remaining 52% of Atlas Energy's outstanding shares that it does not already own in a stock deal valued at about $500 million.

Atlas Energy unitholders will receive 1.16 Atlas America shares for each class B common unit.

The two Moon Township, Pa.-based natural gas and oil developers already have shared resources and staff.

In addition to the regulatory review, the deal also must be approved by Atlas America shareholders and Atlas Energy class B unitholders and receive consent from a majority of the lenders under the Atlas Energy credit agreement.

Claudia Pelosi, spokesman for both companies, told Prospect News on Tuesday that the conglomerate of lenders is "mainly all the big banks that are remaining."

Under the merger's terms, Atlas Energy will become a subsidiary of Atlas America and the new company will be renamed Atlas Energy, Inc.

The deal is expected to close late in the third quarter.

Atlas America shares gained 49 cents, or 3.77%, to close at $13.49 on Tuesday, while Atlas Energy's stock rose by 52 cents, or 3.51%, to $15.33.

Mentioned in this article:

Atlas America, Inc. Nasdaq: ATLS

Atlas Energy Resources, LLC NYSE: ATN

Broadcom Corp. Nasdaq: BRCM

Coca-Cola Co. NYSE: KO

Coca-Cola Enterprises Inc. NYSE: CCE

Emulex Corp. NYSE: ELX

PepsiAmericas Inc. NYSE: PAS

Pepsi Bottling Group Inc. NYSE: PBG

PepsiCo Inc. NYSE: PEP

Qualcomm Inc. Nasdaq: QCOM

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