[PEPSICO, INC. 2000 ANNUAL REPORT][Financial Highlights][Letter from the Chairman]Quaker Oats[Frito Lay][Pepsi-Cola][Tropicana][Corporate Citizenship]
[Principal Divisions & Corporate Officers][PepsiCo Products][Board of Directors][Capital Stock Information/Stock Performance][Shareholder Information]

On December 4, 2000 PepsiCo and The Quaker Oats Company announced plans to merge. The agreement calls for PepsiCo to exchange 2.3 shares of its stock for each Quaker share, up to a maximum value of $105 for each Quaker share.

This historic merger will bring together two of the food and beverage industry's strongest companies and many of its most recognized brands. The merger also will provide an array of strategic and financial benefits.

From a financial perspective, the deal is expected to:

add to PepsiCo's earnings per share in the first full year and thereafter;
immediately improve PepsiCo's return on invested capital by two percentage points, and
strengthen PepsiCo's ongoing sales and profit growth.

Strategically, the merger creates important new growth platforms:

Quaker's powerful Gatorade brand, the world's number one sports drink, will make PepsiCo the clear leader in the United States in non-carbonated beverages, the fastest growing sector of the beverage industry. Gatorade has been growing every year since it was acquired by Quaker in 1983 and shows no signs of slowing. Plus the scale of Gatorade's vast warehouse distribution system will help Tropicana's non-refrigerated juice and juice drink brands to become stronger and more profitable.
Quaker's rapidly expanding snack business - including granola bars, rice snacks and fruit and oatmeal bars - is highly complementary to Frito-Lay, the world leader in salty snacks. The Quaker brand, a symbol of healthy, wholesome eating, will extend PepsiCo's reach into morning on-the-go foods, snacks aimed at kids and grain-based snacks. Adding Quaker snacks to Frito-Lay's vast distribution system will create very substantial growth opportunities in the United States and internationally.
Quaker's highly profitable non-snack food business (with leading brands like Quaker oatmeal, Life and Cap'n Crunch cereals, Rice-A-Roni and Aunt Jemima syrup) generates hundreds of millions of dollars in cash. Through greater innovation and efficiencies, it can continue providing steady profit growth and lots of free cash flow.

The transaction is expected to be tax-free and accounted for as a pooling-of-interests. It requires the approval of PepsiCo and Quaker shareholders. It also requires the issuance of approximately 315 million new PepsiCo shares to Quaker shareholders.