Filed under: Deals, Competitive strategy, Coca-Cola (KO), PepsiCo (PEP)

PepsiCo (NYSE: PEP) did a little buying in the marketplace today. No, I’m not talking about share buybacks — I’m talking about an acquisition in Russia.

PepsiCo teamed up with Pepsi Bottling Group (NYSE: PBG) to take on a majority position in Russia’s largest juice business, JSC Lebedyansky. The price tag was significant — $1.4 billion (890 million euro). This AP news item indicates that it is the largest transaction for the beverage maker since its purchase of Quaker Oats.

Coca-Cola (NYSE: KO), watch out, because this is all about being competitive in the world marketplace, which means it’s all about being competitive against you! It’s also about hedging against the challenging growth rates in case volumes seen in the domestic marketplace, as well as taking on international exposure to gain the benefit of a weaker dollar. Consumer companies know that it’s smart to think globally these days, so acquisitions like these take on major importance. Plus, PepsiCo cannot live on carbonated sodas alone, so any opportunity to broaden its portfolio base beyond its flagship brand is a welcome strategy (Coke knows this to be true, too).

It’s difficult to argue that this is anything but a cool move — I’d like to argue, since I own shares of Coca-Cola, but alas, I can’t find a proper contrarian angle. So, nice move, Pepsi, you did good today, you got a decent asset in a growing international territory, and the price tag won’t break the bank. But don’t worry, my bubbly friend — I’m sure Coke is taking note of this, seeing what it needs to do to remain competitive against you (at least, I hope that’s what the brains in Atlanta are doing).

Disclosure: I own shares of Coca-Cola; positions can change at any time.

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Filed under: Management, Competitive strategy

This post is one of several on business heirs apparent. Let us know in the comments whether you think Roger Penske, Jr., should take up the reigns of Penske, and be sure to check out the other heir apparent posts.

Roger Penske is as much a fixture of the auto racing world as any person could claim to be. At 70 years old, he’s still an effective if not brilliant leader, with his hands on the wheel of a carefully built, racing world success. You have to wonder though, if Roger Penske is getting ready to step aside and let some new talent slip into the driver’s seat. If a change in leadership fits into his immediate or mid-range plans, who might his replacement be?

With four sons and one daughter, Roger has no shortage of Penske offspring who might be considered for stepping into the racing patriarch’s formidable shoes. The question is, are any of them fit for the job? We may have gotten just a glimmer of what’s to be expected by the recent stepping down of Roger Penske, Jr., from his position as president of Penske Automotive Group Inc. (NYSE: PAG). Roger, Jr., is reported by Crain’s Detroit Business to be retiring from Penske Automotive and purchasing four California auto dealerships from Penske Corp. Is this change to facilitate his being groomed to step into his dad’s position? No source I’ve seen appears to be sure if that is the case.

Roger, Jr.’s purchase of Penske dealerships may lighten the workload for his brother Greg. As president of Penske Motor Group, Greg W. Penske might also be a natural choice to be his dad’s replacement. However, when given the Penske Racing tradition of promoting from within, would putting one of the sons at the helm of Penske Racing be too big a departure from the norm? Central to the matter are two significant dynamics. First, we can believe that Roger Penske shall conduct personnel adjustments in the best long-term interests of Penske Racing. Second, we can be certain that Mr. Penske considers taking care of business as an essential precursor to taking care of family.

Roger Penske doesn’t toss around idle speculation. He also doesn’t disclose details before their time. If there is a plan to hand the Penske Racing baton to his offspring, with the exception of Roger, Jr.’s recent career adjustments, the tale is being kept well concealed. For now, it’s my best bet that Roger, Jr., will be taking over his father’s responsibilities at Penske Racing some time down the road. As always in the world of auto racing, we won’t know the final standings until the finish line is crossed.

Also be sure to check out the other heir apparent posts.

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Filed under: Bad news, Competitive strategy

Toshiba Corp. (OTC: TOSBF) will take a beating after admitting defeat in the recent next-generation DVD wars and pulling out of HD DVD. Japan’s largest chipmaker, as a result, sliced its full-year profit forecast by a staggering 31% this week to account for the HD DVD defeat as well as falling flash memory costs. It has its hands in both pots and both are going to kill a good chunk of profits this year.

In addition to writing down its HD DVD assets, the market for flash memory has already become brutal this year for Toshiba as well as for the competition like Samsung Electronics and Intel Corp. (NASDAQ: INTC). It’s facing its first annual profit drop in over six years based on these two factors, as the company expects its flash memory prices to decline by 50% in its current fiscal year alone. Combine that will the wind-down of HD DVD (yes, there is still hardware inventory in stores), and Toshiba’s in for a ride this year.

Let this be a lesson to the Japanese electronics giant: don’t participate in risky format wars and minimize your exposure to a volatile market like flash memory (well, if you can). The ridiculous Blu-ray vs. HD DVD wars that existed for years finally came to an end this year, but now one of the parties will lose its shirt — Toshiba. Sure, licensing revenue would have been great — just ask Sony Corp. (NYSE: SNE) about this — but you have to have a compelling reason to win. Toshiba apparently did not.

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Filed under: Competitive strategy, Dell (DELL), Wal-Mart (WMT), China

Dell (NASDAQ: DELL) is going to spend a boat-load of money in China this year. According to Reuters, the big PC company will spend $23 billion on components from the big Asian country up 28% from last year.

The question is, does Dell have to buy every one of those parts in China, or would it like the government and consumers there to think the firm is “China friendly”?

A number of companies doing huge amounts of business in China, like Wal-Mart (NYSE: WMT) also buy a significant amount of their products there.

What Dell does not talk about, at least when it is in China, is how much of its component budget goes to Taiwan, either directly or though the purchase of chips, which are wholesaled from there by firms that supply the PC company with processors.

Why offend the Chinese? Taiwan is not a very big PC market.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Deals, Industry, Competitive strategy, Boeing Co (BA), Politics, Northrop Grumman (NOC)

Boeing (NYSE: BA) is thumping its chest about the likelihood that it can get Congress to reverse a deal giving a $35 billion military tanker contract to Northrop Grumman (NYSE:NOC) and EADS, the parent of Airbus.

According to Reuters Mark McGraw, a company vice president, said he was “as confident as I can be” that congressional auditors would find fault with the U.S. Air Force’s February 29 choice of the rival team. Brave words, especially when the Air Force claims that the Boeing proposal lost on every key metric for building the tanker.

Boeing is counting on members of Congress who don’t want American jobs to go overseas to push back on a contract which includes Europe-based EADS. But, it may not be that simple.

The Wall Street Journal reports that “Government contracting documents show that the U.S. Air Force preferred the size and capability of aerial refueling tankers” being offered by EADS and Northrop. The EADS Airbus 330 can carry more fuel that its Boeing competition.

Boeing is almost certainly wasting its time. No matter how much some Congressmen would like to save jobs for their districts, they cannot be seen as favoring a deal which is probably substantially inferior.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Bad news, Industry, Competitive strategy, AMR Corp (AMR), Oil, Delta Air Lines (DAL)

Delta (NYSE:DAL) offered buy-outs to 30,000 employees in the hopes that at least 2,000 of them will leave. The company will also cut the number of routes that it flies. According to The Wall Street Journal “the airline was forced to take further cuts because fuel prices have risen nearly 20% over the past three months, increasing its fuel bill for this year by nearly $900 million.”

Delta’s plan is now old news What is not is that all of the major carriers here and abroad are going to have to make similar moves, putting tens of thousands of airline workers out of work. AMR (NYSE:AMR), the parent of American Airlines, says its fuel bill could be up $4 billion this year.

The airline industry may be headed toward another set of bankruptcies. Most of the large carriers have razor thin margins and plenty of debt service. There will now be a race of cost cutting against the effect of the recession on traffic and oil prices on margins.

The airline industry has very few outs. If carriers cut too many routes, they open themselves up to competition. If they cut too few, they may have a cost base which they cannot support. That leaves chopping employees as the only way to save a lot of money.

The news of more buy-outs and lay-off is coming, and coming very soon.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Management, Competitive strategy, Trump Entertainment Resorts (TRMP), Entrepreneurs

This post is one of several on business heirs apparent. Let us know in the comments whether you think about Ivanka Trump, and be sure to check out the other heir apparent posts.

Ivanka Trump, 26, daughter of Donald Trump, is an heir apparent to her dad’s real estate and entertainment holdings. Her business title is the vice president of real estate development and acquisitions at the Trump Organization, which is a holding company for many of Trump’s businesses (Trump’s casinos are part of Trump Entertainment Resorts (NASDAQ: TRMP).

Ivanka, while arguably the most famous of Trump’s children, isn’t his only heir apparent. Her siblings Donald, Jr., and Eric are also currently executive vice presidents, according to Wikipedia. But she stands out as the one likely to claim the top job given her love of the limelight — she is a frequent cover girl and has appeared on the Apprentice — as well as her oft-proclaimed drive to succeed in business.

However, I for one am getting sick of all the talk about her heir apparent status. Money-losing casinos, licensing deals for everything from hotels to cologne, and a TV show that’s been in rapid decline since the end of its first season? That empire? What’s second prize, 50 shares of Bear Stearns?

And if that weren’t bad enough, Ivanka Trump is annoying on a personal level. Watching her give condescending business advice to self-made marketing genius and Kiss frontman Gene Simmons on the set of her father’s TV show made my blood boil. Someone please send her this poster.

Already, Ivanka has shown a penchant for the same self-promotional antics as her father — regular appearances on talk shows including an appearance on Jimmy Kimmel’s show, where an intoxicated Andy Dick was dragged off-stage by security for touching her repeatedly.

Of course, I don’t mean to be all negative, and I generally try to say something nice about someone in every post: Ivanka Trump has better hair than her dad.

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Filed under: Launches, Industry, Consumer experience, Competitive strategy, Intel (INTC), Advanced Micro Dev (AMD)

Intel (NASDAQ:INTC) does not seem to be satisfied with the beating it’s giving AMD (NYSE:AMD). It wants to bring out an even larger line of chips aimed straight at its rival.

According to The Wall Street Journal, the chip company “gave new details of plans to introduce chips that pack four, six, eight or more electronic brains on a piece of silicon to boost calculating performance.”

AMD has a new quad-core chip called Barcelona, and many of the company’s plans to recover market share are based on the product.

Intel’s new products will make PCs run much faster and will also give its a stronger case in the server market. Some of the new chips are particularly good at running graphics, a market that AMD’s ATI unit has done well in over the years. The other company with a large foothold in that industry is Nvidia (NASDAQ:NVDA).

All of the chip companies have been hurt over the last six months based on the assumption that a slowdown in the economy will cut into PC sales growth. But, Intel is off less than its rivals. Its stock is down less than 20% over the period while AMD and Nvidia are both off more than 40%.

Intel can weather a tough market. It has the balance sheet and gross margins to hold on and spend huge sums on the R&D effort which is behind its newest products. AMD, carrying $5 billion in debt and with no profits, faces real problems keeping up.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Industry, Consumer experience, Competitive strategy, Ford Motor (F), Marketing and advertising, Toyota Motor Corp. (TM)

Ford (NYSE:F) is starting a new marketing campaign that will allow it to work more directly with its dealers to get back customers it has lost to the Japanese and European car companies. But, the horse has already left the barn.

The car company is launching a new advertising message called “Ford. Drive One”. According to The Wall Street Journal ,”While the slogan will appear in television commercials, Ford is counting on aligning dealers nationwide to echo the same message in their advertising efforts aimed at local audiences.”

Ford is gambling that by getting dealers excited about new cars from the company it will be able to rally its outlets to push harder in their local markets to take share from companies like Toyota (NYSE:TM).

The new push to some extent ignores that fact that Americans want cars from Japan and Europe because they work better and have better resale value.

Ford cannot get people to come to dealers if consumers don’t like its cars. If it had a hot model like the Prius or the Accord, the traffic would come based on the demand for a better-built, more fuel-efficient car. That lesson seems to have been lost on the US company.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Deals, Good news, Press releases, Industry, Competitive strategy

An International Paper (NYSE: IP) press release announced today that the company is intending to purchase the Containerboard, Packaging and Recycling (CBPR) businesses of Weyerhaeuser (NYSE:WY)for $6 billion in cash. The deal is expected to close in Q3 2008, subject to regulatory approval and financing.

Due to the realization of tax benefits based upon International Papers purchase of Weyerhaeuser assets rather than stock, IP shall realize tax benefits in the amount of approximately $1.4 billion, making the actual purchase price closer to $4.6 billion.

International Paper Chairman and Chief Executive Officer John Faraci is quoted in the press release as stating: “This deal represents a compelling opportunity for International Paper and our share owners at a very attractive valuation… integrating Weyerhaeuser’s CBPR business into our North American packaging platform fits very well with our strategy to improve our earnings, cash flow and returns by strengthening existing businesses. We expect the combined packaging business will generate stronger cash flow and higher EBITDA margins than either standalone business.”

Even though International Paper sees considerable upside potential in this acquisition, as of this writing, shares of International Paper have lost nearly 8.5 percent on the day. This may signal a good near term opportunity to buy into company shares when considering that the company indicates this deal holds income increase potential of as much as $400 million annually. The company sees this acquisition improving profitability over a three year period of assimilation, with approximately 40% of that improvement to be realized within the first 12 months of closing the deal.

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