US gov drags feet on Pepsi-Quaker deal

The widening gap between PepsiCo Inc. and its proposed acquisition target, Quaker Oats Co., has left investors wondering whether government regulators are moving to complete the deal or will require increased concessions from Pepsi, Reuters reports. At the close Wednesday, the spread between the price at which Quaker's stock was trading and the price offered seven months ago for Quaker by Pepsi in its $13.8-billion buyout deal widened to more than 10 per cent, from 6.6 percent at the close Monday. A widening spread can be an indication that investors are worrying about whether the deal will close. While most sources believe that the deal will not be stopped, the longer the government delays, the more skittish investors get.Shares of Chicago-based Quaker rose 44 cents to close at $90.99 on Wednesday on the New York Stock Exchange, while Pepsi's were up 35 cents to $44.06. A mergers and acquisition attorney who advises arbitrage traders told clients that Federal Trade Commission staff members are preparing documentation to try to make a case against the merger, arbitrage traders and an investor, who declined to be identified, told Reuters. The "attorney believes staff members of the FTC have been preparing documents in order to block the transaction,"​ said an arbitrage trader, who does not have positions in either stock. Quaker representatives would not comment on progress of the deal. A spokesman for Purchase, New York-based Pepsi said that company has been in a "constructive dialogue with the FTC on a daily basis." Pepsi said earlier this month that the deal will be delayed until the third quarter as talks with regulators continue. Shareholders of both companies approved the deal last month. Despite the attorney's concerns, industry watchers said investors remain focused on the national sports drink market and whether other drink manufacturers will be able to compete with Gatorade, which already controls the U.S. market, after it has the backing of Pepsi​. Pepsi agreed to sell its All Sport brand sports drinks business, which controls less than 5 percent of the market, to Atlanta-based Monarch on May 1. By comparison, Powerade, made by No. 1 soft drink maker Coca-Cola Co.​, controls about 15 per cent of the market. Source: Reuters