Exhibit (c)(3)
Exhibit (c)(3)
Confidential
Project Alchemy
Board Presentation Materials
January 4, 2009
Confidential
Summary
Context: we must resolve our NA bottling system issues now
• Belief remains in the long-term attractiveness — and importance to P — of NAB
• Significant changes in NA LRB have challenged the bottler franchise model
• We have three options to address this: acquire B&A, merge B&A, restructure relationship
B&A acquisition is strategically compelling, with offensive and defensive benefits
• Delivers a leaner, simpler, more flexible system that holistically addresses our challenges
• Creates a genuinely advantaged system
• Provides ability to actively manage the portfolio and provides option value
• Is superior to remaining two options: both are limited in impact and pace
Deal synergies are clear and identifiable with potential for upside benefits
Financials work—synergies cover premium
Risks, concerns are manageable
1
Confidential Context
PAB remains an attractive, important part of P portfolio
Category is large, attractive where P leads
Profit margins in the mid-to-high teens – above most CPGs
Critical to retailers – high GMROI, key to shopping trip
Outside foodservice, P the leader
~$100B wholesale market, ~20B cases sold annually
Growth set to rebound
Long established history of growth
• 3% volume growth ‘90-‘08
• 5% value growth ‘90-‘08
Reasons to believe in a rebound
• People need to drink
• Input cost inflation stabilizing
• Functional drinks to spur growth
• Plans in place to slow CSD declines
~1%+ annual growth expected going forward
PAB Critical to P portfolio
Significant financial contributor. . .
• 31% of ‘07 NOPBT
• Own ~2/3 NA profit pool today
. . .with portfolio benefits
• Enhances non-NA beverage business (beverage ~40% of worldwide profits)
• Secures better portfolio economics in NA
$2.5B in NOPBT contribution to P portfolio
2
Confidential Context
Given current business environment, standard franchise model benefits limited for our System
Benchmarked franchise model benefits
Generates up-front cash
Financial benefits
Facilitates rapid growth
Lowers asset base, boosts returns
Allows focus on core competencies
Operational benefits
Taps into local knowledge, talent
Accesses owner / operator drive, effort
Post spin-off realization (early 2000s)
Current P realization (late 2000s)
Comments
P benefited at time of transaction, but this has played out
Category growth has slowed, and full geographic coverage of NA precludes further expansion
P ROIC enhanced by franchise structure, but redundant operations impacting returns
Initially realized focus benefits now offset by cost of negotiations, operation of parallel WHD system
Local knowledge becoming less important with rise of national acct.
Anchor bottlers are public companies
Substantial post spin-off benefits have largely played out
3
Confidential Strategic case
Recommendation: Acquire B&A
Create a leaner, simpler, more flexible System
In its end state (in 18-24 months), system would be:
Leaner: NewCo would have streamlined operations and would eliminate redundant back office support costs
Simpler: Business model would be largely simplified with all steps in the chain aligned (as opposed to focused on splitting a profit pool)
More flexible and agile: NewCo would be able to rapidly commercialize, react to advancements in manufacturing, and pursue different routes to market. Easier to deal with independent bottlers with P ownership of anchor bottlers.
A differentiated business system vs. KO with the prospect of structural competitive advantage
4
Confidential Strategic case
Integration will greatly improve the issues with our model
Offers a dramatic step forward in our operating and strategic effectiveness
Category Misalignments Degree addressed
Topline Customer Cost / organization
Innovationüü - System profit view will broaden innovation pipeline and speed commercialization
GTM flexibilityüü - New flexibility to select optimal routes by product; potential to push dedicated selling / pick & pack / bundling
across beverages and across P
Reach and liftü - Improved drop economics and focus...but issues with pure play ability to incubate remain
“One face”ü - ~76% of volume consolidated improves service to national accounts and bundling across P...but still not 100%
Capitalüü - Ownership of platform enables control of investment decisions and pursuit of breakthroughs
Redundancyüü - Mftg, distribution and support redundancies removed
5
Confidential Strategic case
Three-Year Stock Price History
3 Year Stock Prices
B A CCE
Time High Average Low High Low High Average Low
3 Months $29.29 $21.22 $16.49 $21.33 $17.91 $15.24 $16.92 $10.61 $7.74
6 Months 32.47 25.34 16.49 24.47 20.21 15.24 18.50 13.91 7.74
1 Year 41.74 29.80 16.49 33.61 23.13 15.24 26.83 18.42 7.74
2 Years 43.08 32.51 16.49 35.72 24.96 15.24 26.89 20.69 7.74
3 Years 43.08 32.24 16.49 35.72 24.15 15.24 26.89 20.57 7.74
$55.00 $50.00 $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00
01/06 05/06 09/06 01/07 05/07 09/07 01/08 05/08 08/08 12/08
3-Yr Avg: $32.24
(43% premium to current)
3-Yr Avg: $24.15
(19% premium to current)
3-Yr Avg: $20.57
(71% premium to current)
B
$22.51
A
$20.36
CCE
$12.03
B A CCE
Source: FactSet as of December 31, 2008.
6
Confidential Deal synergies
~$200-300M in total annual deal synergies available
“Clear” synergies
Customer
• Integrated selling organizations
Cost / organization
• Supply chain — combined transport networks
• Back office — redundancy
• European integration — Spain, Turkey, E.Europe
Other potential synergies
Top-line
• Enhanced innovation
• Pricing alignment
• Enhanced marketing mix
• International topline
Cost / organization
• Cold fill manufacturing consolidation
• Increased SC flexibility
• Greater decision-making speed, focus
Customer
• Gatorade small format DSD
• Power of One
• Net revenue, cost mgmt
• GTM flexibility
• GTM focus
• “One face”
$150M
$50-150M
7
Confidential Deal financials
Deal financials work (I)
Valuation overview: Premium covered by current outlook and deal synergies
B A
($ per share) ($ per share) Assumptions / comments
Current stock price 22.51 20.36
Illustrative purchase price range 25.00 – 32.00 22.61 – 28.94
[+11.1% - 42.2%] [+11.1% - 42.2%]
Offer range of $3.6B – $4.8B for B, $1.7B - $2.1B for A (shares P does not own)
Public comparables 17.75 - 26.25 14.00 – 19.75
Multiple range 5.5-6.5x 2008E EBITDA
DCF (standalone) 27.25 – 33.75 22.75 – 27.50
Illustrative perpetuity growth 1.0-2.0%; 7.5% discount rate
DCF (including synergies) 40.75 32.00
$200M annual synergies allocated between B and A
Acquisition comparables1 39.00 - 47.50 28.25 - 34.00
Multiple range 8.0-9.0x 2008E EBITDA
Precedent squeezeout premiums 26.00 – 30.50 23.50 – 27.50
Premium range 15.0-35.0%
1. No U.S. comparable exists since market correction
Note: Projections for P, B and A compiled by P management
Source: Banker estimates
8
Confidential Deal financials
Deal financials work (II)
Impact on P’s financials: EPS accretive with manageable impact on growth, returns and leverage
Metrics Pro forma Comments
EPS longer-term accretion $0.15 - $0.20
Deal is accretive to EPS beginning in first year
Growth (2009 - 2012)
• Top-line growth ~-50 bps
• EBIT growth comparable
• EPS growth +100 bps
Transaction is accretive to EPS growth, neutral to EBIT growth and dilutive to top-line growth
Business mix (%)
• Beverage / snack 55 / 45
• Domestic / international 60 / 40
Domestic v. international mix does not change materially, but mix shift to beverage decreases P’s EBIT margins
EBIT margin ~-150 bps
ROIC -700 bps
ROIC decreases as a result of purchase accounting, but still above cost of capital and becomes more stable post transaction
Total debt / EBITDA Initially up 0.5x; long-term flat
Credit statistics do not change materially given rating agencies already consolidate B and A on P bal. sheet
Note: Assumes annual synergies of $200M
Source: Banker estimates
Transaction provides IRR greater than cost of capital
9
Confidential
Risks and concerns
Risks, concerns about the deal are manageable
Risk
Execution
International
Category
Comments
• Deal has operational / financial risks…
• …as well as organizational / integration risks…
• …But can manage these with a rigorous PMI and strong, experienced leadership
• B&A intl portfolio in several markets with weak PI positions and mixed growth…
• …But we can take steps to mitigate this concern
• Category growth stalled in 2007 and declined in 2008…
• …But we remain confident in the category and the deal rationale
— Confident that LRB is attractive space and can return to low growth
— Deal about flexibility, restructuring & buying franchise rights, not hard assets
— Category challenges amplify need to restructure the system
10
Confidential
Risks and concerns
While a reversal from 10 years ago, it reflects the new circumstances of our business and category
Situation
Implications
~1998
LRB growth at ~4-5%
Mix dominated by CSDs
DSD only route to market for beverage
Cold fill is predominant platform
KO creating value through bottler refranchising activities
Clear rationale for spin-off
• Efficient execution via focus
• Consolidate system, drive growth
• Distinct investor offering
~2008
LRB decline for first time ever
Proliferation of NCBs, functional beverages with different economics
Many routes to market for beverage
Hot fill and other platforms growing in importance
KO and CCE facing real alignment issues; potentially restructuring
Original rationale has played out, and less relevant given changes in LRB
11
Confidential
Risks and concerns
Potential Issues to be Addressed
Issues
1. Potential for Short-term System Disruption
2. Investor Concerns
- Investment in lower growth / return sector; lowers ROIC
- Reversal of 1998 strategy
- Why not resolve like CCE / KO?
- Any other underlying NA Beverage issues motivating deal?
3. P Issues
- 2009 confidence / guidance
- Financial flexibility for future deals
- Integrating 100,000 person workforce
Responses
• Bottlers incented to perform during negotiations
• P integration experience and rigorous PMI process
• Aligned values / commitment to executional excellence
• Total P performance still strong within peer group (growth and returns)
• See page 11. Proactive decision based on current environment
• Does not address structural issues
• No. Focus is on enhancing long-term Beverage execution capability / system competitiveness
• Confidence in outlook (currency neutral). Will address in February
• Still have considerable flexibility. Credit ratings likely unaltered
• We are an operating culture with extensive operating capabilities / systems / processes. Bottlers have good relationships with unions
12
Confidential
Addendum – Detailed deal financials
13
Confidential Addendum—Detailed deal financials
Current market statistics
P
Current Stock Price $54.77
Diluted Shares (MM) (1) 1,574.993
Equity Value $86,262
Enterprise Value (2) $92,048
Adjusted Enterprise Value (3) $89,140
Total Debt / 2008E EBITDA (2) 1.3x
S&P Rating A+
P Management Estimates
EV / Price /
Multiples EBITDA EPS
2008E 9.6x 14.9x
2009E 9.3 14.6
2010E 8.7 13.3
2011E 8.0 12.1
P Management Estimates
Metrics EBITDA EPS
2008E $9,320 $3.67
2009E 9,566 3.74
2010E 10,283 4.12
2011E 11,082 4.54
B Current Stock Price $22.51
Diluted Shares (MM)(1) 213.593
Equity Value $4,808
Enterprise Value (2) $11,455
P Overall Ownership (3) 37.6%
Value of P Equity Stake $1,809
Value of Public Stake $2,999
Total Debt / 2008E EBITDA (2) 3.2x
S&P Rating A
P Management Estimates
EV / Price /
Multiples EBITDA EPS
2008E 6.3x 10.2x
2009E 6.4 10.2
2010E 6.1 9.2
2011E 5.8 8.3
P Management Estimates
Metrics EBITDA EPS
2008E $1,818 $2.21
2009E 1,788 2.20
2010E 1,873 2.45
2011E 1,960 2.71
A
Current Stock Price $20.36
Diluted Shares (MM) (1) 127.752
Equity Value $2,601
Enterprise Value (2) $4,834
P Overall Ownership (3) 42.4%
Value of P Equity Stake $1,100
Value of Public Stake $1,502
Total Debt / 2008E EBITDA (2) 3.0x
S&P Rating A
P Management Estimates
EV / Price /
Multiples EBITDA EPS
2008E 6.6x 10.9x
2009E 6.8 10.8
2010E 6.3 9.6
2011E 6.0 8.7
P Management Estimates
Metrics EBITDA EPS
2008E $729 $1.87
2009E 716 1.88
2010E 764 2.11
2011E 808 2.33
Note: Dollars in millions, except per share amounts. Prices as of December 31, 2008. (1) Diluted shares accounted for under the treasury stock method.
(2) Debt, cash, minority interest and preferred stock balances as of 10-Q filed for period ending September 2008. P leverage based on system debt and EBITDA.
(3) P’s adjusted enterprise value excludes P’s ownership in B and A. Assumes P owns 70.2 million basic B shares and 6.6% direct interest in Bottling LLC and owns 54.0 million basic A shares per P’s management guidance.
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Confidential Addendum—Detailed deal financials
B—preliminary valuation overview
$50.00
40.00
30.00
20.00
10.00
0.00
$42.02
$15.78
$38.00
$18.00
$26.25
$17.75
$40.75
(with synergies) (2)
$33.75
$27.25
$47.50
$39.00
$30.50
$26.00
Current:
$22.51
Methodology:
Key Assump.:
52-Week Trading Range(1)
Low—High
$15.78—$42.02
Analyst
Price Targets
Low—High
$18.00—$38.00
Public
Comparables
Multiple Range
5.5x—6.5x
2008E EBITDA
$1,818
DCF
Perpetuity Growth(3)
Illustrative Perp. Growth
1.0%—2.0%
Illustrative Discount Rate
7.5%
Acquisition
Comparables (4)
Multiple Range
8.0x—9.0x
2008E EBITDA
$1,818
Precedent
Squeezeout Premiums
Premium Range
15.0%—35.0%
Note: Dollars in millions, except per share amounts. Share prices rounded to the nearest $0.25, except for 52-week trading range. B financials based on P management guidance. Assumes 213.6 million diluted shares and net debt of $6.6 billion ($5.8 billion of debt, $1.4 billion of minority interest and $0.5 billion of cash) per September 2008 10-Q.
(1) Represents intraday prices.
(2) Synergies allocated between B and A based on contribution to 2008E EBITDA.
(3) Excludes estimated after-tax pension liability of $417 million. If included in the valuation, implied equity value per share of $25.25 to $32.00 at 7.5% discount rate. (4) No U.S. comparable exists since market correction.
15
Confidential Addendum—Detailed deal financials
A - preliminary valuation overview
$60.00
50.00
40.00
30.00
20.00
10.00
0.00
$34.50
$14.51
$30.00
$15.00
$19.75
$14.00
$32.00
(with synergies) (2)
$27.50
$22.75
$34.00
$28.25
$27.50
$23.50
Current:
$20.36
Methodology:
Key Assump.:
52-Week Trading Range(1)
Low - High
$14.51 - $34.50
Analyst
Price Targets
Low - High
$15.00 - $30.00
Public Comparables Multiple Range
5.5x - 6.5x 2008E EBITDA $729
DCF
Perpetuity Growth (3)
Illustrative Perp. Growth
1.0% - 2.0% Illustrative Discount Rate
7.5%
Acquisition
Comparables(4)
Multiple Range
8.0x - 9.0x 2008E EBITDA $729
Precedent Squeezeout Premiums Multiple Range
15.0% - 35.0%
Note: Dollars in millions, except per share amounts. Share prices rounded to the nearest $0.25, except for 52-week trading range. A financials based on P management guidance. Assumes 127.8 million diluted shares and net debt of $2.2 billion ($2.2 billion of debt, $0.3 billion of minority interest and $0.3 billion of cash) per September, 2008 10-Q.
(1) Represents intraday prices.
(2) Synergies allocated between B and A based on contribution to 2008E EBITDA.
(3) Excludes estimated after-tax pension liability of $83 million. If included in the valuation, implied equity value per share of $22.25 to $26.75 at 7.5% discount rate.
(4) No U.S. comparable exists since market correction.
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Confidential Addendum – Detailed deal financials
Acquisition pricing matrix
Assumed B Offer Price
Assumed A Offer Price at Consistent Premium
Offer Price $25.00 $26.00 $27.00 $28.00 $29.00 $30.00 $31.00 $32.00 $22.61 $23.52 $24.42 $25.33 $26.23 $27.13 $28.04 $28.94
Implied Premium to Current (1) 11.1% 15.5% 19.9% 24.4% 28.8% 33.3% 37.7% 42.2% 11.1% 15.5% 19.9% 24.4% 28.8% 33.3% 37.7% 42.2%
vs. 52-Week High (2) (40.5%)(38.1%)(35.7%)(33.4%)(31.0%)(28.6%)(26.2%)(23.8%)(34.5%)(31.8%)(29.2%)(26.6%)(24.0%)(21.3%)(18.7%)(16.1%)
vs. 30-Day Average (3) 30.9% 36.2% 41.4% 46.6% 51.9% 57.1% 62.4% 67.6% 26.3% 31.4% 36.4% 41.5% 46.5% 51.6% 56.6% 61.7%
vs. 20-Day Average (4) 25.7% 30.7% 35.7% 40.8% 45.8% 50.8% 55.9% 60.9% 20.6% 25.4% 30.2% 35.0% 39.9% 44.7% 49.5% 54.3%
Implied Offer Value $5,340 $5,573 $5,814 $6,054 $6,295 $6,535 $6,776 $7,016 $2,892 $3,009 $3,126 $3,242 $3,359 $3,476 $3,593 $3,710
Implied Offer Value for Public Shares (5)
$3,586 $3,749 3,919 4,089 4,260 4,430 4,600 4,771 1,671 1,739 1,807 1,875 1,943 2,011 2,079 2,146
Implied Trans. Value 11,987 12,220 12,461 12,701 12,942 13,182 13,423 13,663 5,125 5,242 5,359 5,475 5,592 5,709 5,826 5,943
2008E EV/EBITDA 6.6x 6.7x 6.9x 7.0x 7.1x 7.3x 7.4x 7.5x 7.0x 7.2x 7.3x 7.5x 7.7x 7.8x 8.0x 8.1x
2009E EV/ EBITDA 6.7 6.8 7.0 7.1 7.2 7.4 7.5 7.6 7.2 7.3 7.5 7.6 7.8 8.0 8.1 8.3
2009E P/E 11.4 11.8 12.3 12.7 13.2 13.6 14.1 14.5 12.0 12.5 13.0 13.5 14.0 14.4 14.9 15.4
Notes: Dollars in millions, except per share data.
(1) B closing share price of $22.51 as of December 31, 2008. A closing share price of $20.36 as of December 31, 2008.
(2) B 52-Week intra-day high of $42.02 on January 10, 2008. A 52-Week intra-day high of $34.50 on December 31, 2007.
(3) B 30-Day average price of $19.09 as of December 31, 2008. A 30-Day average price of $17.90 as of December 31, 2008.
(4) B 20-Day average price of $19.89 as of December 31, 2008. A 20-Day average price of $18.76 as of December 31, 2008.
(5) Assumes P owns 70.2 million basic B shares and 6.6% direct interest in Bottling LLC and owns 54.0 million basic A shares per P’s management guidance.
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Confidential Addendum – Detailed deal financials
Recommended transaction structure
Recommend that P leave flexibility to negotiate on multiple topics
Price
Consideration Mix
Pricing of Stock Consideration
Conditionality
Structure
Key Conditions
Other
• Start at same premium
• 50% cash / 50% stock
• Strip
• Fixed exchange ratio
• Cross conditional with respect to both B and A
• “Forward triangular” merger structure for both acquisitions
- Receipt of stock by B’s and A’s shareholders (other than certain shares held by P) will be tax-free if 40% of consideration is stock (P’s current ownership in B and A counts toward 40% requirement)
- Will likely require amendment from bank to maintain current B and A credit facilities ($1.8bn total); expected to be easily obtained
- All bonds expected to roll over
• Confirmatory financial, business and legal due diligence
• Subject to Special Committee approval
• HSR approval
• Indicate in offer that P would not support another transaction (“not a seller here”)
• Leave flexibility to increase and differentiate (B currently at lower multiple)
• Ability to go to 100% cash and create synthetic 50% cash / 50% stock via reduction in share buyback
• Flexibility to change to election mechanism
• Flexibility to change to fixed price, with collar
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