Proposed Acquisitions of California Pizza Kitchen and Carts of Colorado by Pepsico

In: Business and Management

Submitted By tanish50
Words 757
Pages 4
The proposed acquisitions of California Pizza Kitchen and Carts of Colorado by Pepsico
1. Should PepsiCo buy California Pizza Kitchen?
For both acquisitions it's more about what they add to PepsiCo, not what value PepsiCo adds to them
Pros:
- needs to acquire CPK to learn casual dining. That's where the growth is, and internal attempts to develop casual dining in Pizza Hut Cafe have failed.
whether CPK is merely a passing yuppie fad, or if it is a long-term market segment doesn’t matter to PepsiCo if it merely wants to learn casual dining.
- PepsiCo startups failing
Cons: - possibly PepsiCo’s failure to develop a casual chain internally, along with the real differences between fast food and sit-down dining, will prevent it from succeeding.
•New segment that PepsiCo doesn't know
- Yuppie casual dining
• $11 check, dinner on pizza dough
- PepsiCo ignorant of key success factors
•high level waiter service
•PR not advertising key to marketing
•capital cost $1 - $2m, sales $3m not $800k, $800k.
•New untested concept
- 25 restaurants, 8 states, $34m sales, $3/4m net income
- may be a "fad"
•only seven years old
- may not stretch beyond Yuppiedom


2. Should they buy Carts of Colorado?
Pros: - while CoC's $8m sales is very small for Pepsico, the real market size is the revenue from non-traditional PODs, and this is potentially enormous ($2 billion to PepsiCo alone)
The real reason to own CoC is to preempt Coke and MacDonalds in the best locations for the new POD. Other students object that location, not the cart, is the asset, and that even locations are easily imitable (i.e., one cart next to another at Fenway Park). The answer lies somewhere in between, since at many locations (i.e. schools, factories), only one supplier will be invited in.
Critical to PepsiCo POD restaurant strategy
- unique cart design
- customize for PepsiCo…...

Similar Documents

California Pizza Q1

...Question 1 In what ways can Susan Collyns facilitate the success of CPK? We identify a number of areas in which California Pizza Kitchen can improve on both the operation side and the financial side. However, in this analysis, we will focus on the financial side of CPK. We believe that the CFO, Susan Collyns, can facilitate success of the firm by implementing the following measures: • Increase advertising spending • Increase leverage using debt financing by changing the existing capital structure and purchasing US treasure securities • Repurchase the company’s stock Advertising: CPK spent 1% of its sales on advertising, far less than the 3% to 4% of sales that casual dining competitors, such as Chili’s, Red Lobster, Olive Garden and Outback Steakhouse, spent annually. CPK currently relies greatly on word of mouth advertising to attract more customers to their restaurants. While this policy has served them well in the early stage, the firm may need to increase its advertising spending as the firm expands. Capital Structure CPK used the proceeds from its 2000 initial public offering to pay off its outstanding debt and completely avoided debt financing. CPK maintained borrowing capacity with a $75 million credit line with a LIBOR interest rate of 5.36% (plus 0.80%) total interest rate was 6.16% compared to the U.S. Treasury 30-year bond interest rate of 5.20% at the highest. CPK currently has no debt on their balance sheet. Not only should they use debt......

Words: 326 - Pages: 2

California Pizza Kitchen Case

...California Pizza Kitchen Company Background: White-collar criminal defense attorneys Larry Flax and Rick Rosenfield in Beverly Hills, California created California Pizza Kitchen in 1985. Famously known for its hearth-baked barbecue-chicken pizza, the “designer pizza at off-the-rack prices” concept thrived. Over the last twenty years, the company has expanded into 213 locations in 28 states and 6 foreign countries. Although approximately 41% of the U.S. stores are located in California the business model has done well throughout all regions. California Pizza Kitchen derives its revenues from three sources: sales at company-owned stores, royalties from franchised restaurants, and royalties with a partnership with Kraft Foods to sell CPK-branded frozen pizzas in grocery stores. In 1996, CPK extended its brand with franchised ASAPS located in airports that offered a limited selection of pizzas and an assortment of “grab and go” sandwiches and salads. In 2000, CPK launched company owned ASAP locations as well. In 2007, CPK ceased development for any future ASAP locations to focus more on continued expansion of both domestic and international franchised locations. With the recent 10% share price decline, CPK is questioning whether this is an ideal time to repurchase shares and potentially leverage the company’s balance sheet with its prevailing line of credit. CPK is considering repurchasing shares and using debt financing to fund the strong expansion outlined for the company...

Words: 666 - Pages: 3

California Pizza Kitchen Case

... best thing for California Pizza Kitchen. Looking at Exhibit 7, Comparative Financial data between Restaurants, Frisch's Restaurants have a 0.44 dividends per share while currently California Pizza Kitchen and Chipotle Mexican Grill have 0.00. Based on this chart there seems to be a correlation between dividends per share and share price, showing that Frisch's Restaurants have one of the lowest share prices of $30.54, while Chipotle Mexican Grill has a share price of $86.00. Although CPK only has a share price of $22.10 if they follow in the footsteps of Chipotle Mexican Grill by having 0% debt and an equal debt to equity ratio, the more revenue that comes in, the higher their share price will be. 2) Based on the fact that all other competitors spend roughly four times as much on advertising as California Pizza Kitchen, it would be beneficial for them to up their advertising budget. From 2003 to 2006 net income went from $5 602 000 to $21 000 000 and even though cost of labour, and cost of goods sold have increased in that same span of time, the company still has disposable income to take into consideration. Rather than repurchasing shares we feel as though the company could benefit from increasing their sales budget and becoming more on par with some of their competitors as well as increasing their already high traffic levels and brining in even more revenue than they currently are. They pride themselves on their menu innovation and having a unique menu so if they...

Words: 1393 - Pages: 6

California Pizza Kitchen

... effect | $7,662 | $14,659 | $21,996 | Number of original shares | 29.13 Mln | 29.13 Mln | 29.13 Mln | Share price | $22.36 | $22.60 | $22.85 | New market value of equity | $628,516 | $613,259 | $598,002 | Number of shares | 28.10 Mln | 27.13 Mln | 26.17 Mln | CONCLUSION Considering the three financial options that the company has proposed in Exhibit 9 it is important to address the potential risks of the current industry while utilizing the effects that leveraging will have on the company. In term of managerial decisions what has to be considered are three factors: the tax benefit is important only when the firm has a large amount of taxable liability, the greater the risk of financial distress the less the debt will be for the firm, and the overall value of the firm is not really affected by the changes in capital structure. It is the best time for California Pizza Kitchen to repurchase shares because as I mentioned before their share price is lower than the prevailing market share price. We need to remember that a company that repurchase some of its own stock signals to investors that it believes the stock is undervalued. Repurchasing the stock will reduce the supply and therefore the price will increase. After my analysis and those last considerations I believe that CPK should opt for the second option with 20% of its finances in debt. The effect of the tax shield will allow them to increase the cash flow since we know that if the amount of debt...

Words: 3341 - Pages: 14

California Pizza Kitchen

... around the world is and will always be certain to some risks. It is very important to realize that risk your business is exposed to and try your best to minimize that risk and continue to work on creating a profit. Howard Weil is good at minimizing risks, since they are an investment company. Investment companies know all about risk. Even though Howard Weil is successful at limiting risk, many new risks will arise when the try to outsource to China. These risks could be potentially greater. There are two segments of the domestic firm that can be attacked by the Chinese firm – first, there is cost innovation that another similar company like Howard Weil could provide and therefore Howard Weil would not be able to turn a profit. The second segment is the ability to take control over other markets, where there has not been much competition. Howard Weil will be entering a different market and they must realize the other businesses in that market. The other risk to worry about is “mindset and geographic prowess.” Lots of the Western countries demand lower prices compared to the United States. Similarly, China used to. China is able to take control of these markets with its customer service. China offers other companies its services at a good price compared to other Western Companies. These markets accept China’s prices. The book also goes into how important customization is. Customization is vital for all businesses. Companies have to respond to individuals......

Words: 2274 - Pages: 10

Proposed Acquisitions of California Pizza Kitchen and Carts of Colorado by Pepsico

...The proposed acquisitions of California Pizza Kitchen and Carts of Colorado by Pepsico 1. Should PepsiCo buy California Pizza Kitchen? For both acquisitions it's more about what they add to PepsiCo, not what value PepsiCo adds to them Pros: - needs to acquire CPK to learn casual dining. That's where the growth is, and internal attempts to develop casual dining in Pizza Hut Cafe have failed. whether CPK is merely a passing yuppie fad, or if it is a long-term market segment doesn’t matter to PepsiCo if it merely wants to learn casual dining. - PepsiCo startups failing Cons: - possibly PepsiCo’s failure to develop a casual chain internally, along with the real differences between fast food and sit-down dining, will prevent it from succeeding. •New segment that PepsiCo doesn't know - Yuppie casual dining • $11 check, dinner on pizza dough - PepsiCo ignorant of key success factors •high level waiter service •PR not advertising key to marketing •capital cost $1 - $2m, sales $3m not $800k, $800k. •New untested concept - 25 restaurants, 8 states, $34m sales, $3/4m net income - may be a "fad" •only seven years old - may not stretch beyond Yuppiedom 2. Should they buy Carts of Colorado? Pros: - while CoC's $8m sales is very small for Pepsico, the real market size is the revenue from non-traditional PODs, and this is potentially enormous ($2 billion to PepsiCo alone) The real reason to own CoC is to preempt Coke and MacDonalds in the best...

Words: 757 - Pages: 4

Calfornia Pizza Kitchen

...Summary: California Pizza Kitchen The California Pizza Kitchen was founded by Larry Flax and Rick Rosenfield in 1985. CFK operates a casual dining chain which mostly focuses on pizza segment. It is well renowned for barbecue chicken pizza as well as the designer pizza. By the end of 2007, the company had 213 restaurants in 28 states and 6 in foreign countries. But the real financial condition of CFK was severely problematic. The company’s share price declined at the rate of 10% making a current value of $22.10. For the fact, the company decided to buy back the shares. But the company current cash and cash equivalents are only 2.11% to its total cash. Hence the company has no potential to buy back the shares. But the company had no debt so they had the strong potential of borrowing debt but the interest rates were not in the favor of the CPK, so due to this fact the company was hesitating to take the loan. There are three principal situations lead to stock repurchases. A company may decide to increase its leverage by issuing debt and using the proceeds to repurchase stock. Secondly, many firms have given their employees stock options, and they repurchase stock for use when employees exercise the options. Thirdly, a company may have excess cash. But with CFK the only option is to increase its leverage by issuing debt and from that it should repurchase the stocks. To find out that whether it will be beneficial for the company issue debt or not we have to go through finding out...

Words: 480 - Pages: 2

Solution California Pizza Kitchen

...UNIVERSITY OF OREGON INVESTMENT GROUP February 26th, 2010 Consumer Goods California Pizza Kitchen BUY Stock Data Price (52 weeks) Symbol/Exchange Beta Shares Outstanding Average daily volume (3 month average) Current market cap Current Price Dividend Dividend Yield Valuation (per share) DCF Analysis Comparables Analysis Target Price Current Price Summary Financials Revenue Operating Cash Flow Net Income 662M 2009A 44.6M 2009A 4.6M 2009A 9.41 – 17.44 CPKI / NYSE 1.25 24,183,000 400,876 365,975,000 $15.07 $0.00 0% $15.18 $17.73 $16.46 $15.07 BUSINESS OVERVIEW California Pizza Kitchen was founded in 1985 by Rick Rosenfield and Larry Flax in Beverly Hills, California. Twenty years later, California Pizza kitchen operates over 250 restaurants around the world and is still run by its initial founders. The largest portion of CPK’s restaurants are still located throughout California, however they are now located in dozens of states as well as internationally in Asia, North America and the Middle East. Almost all of California Pizza Kitchens revenues come from company owned full Covering Analyst: Ari Siegel Email: Asiegel@uoregon.edu The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is strictly educational. Member students are not certified or licensed to give investment advice or analyze securities, nor do they purport to be. Members of UOIG may have clerked, interned or held various employment positions with firms held in...

Words: 5881 - Pages: 24

California Pizza Kitchen

...California Pizza Kitchen Enoch Li & Dong Yi Yuan Table of Contents Introduction2 Question #12-3 Question #23 Question #3 4 Question #44 Conclusion 5 Appendix A ...……………………………………………………………………………………..6 Introduction California Pizza Kitchen (CPK) is an innovative cuisine restaurant that serves pizzas, pastas, soups, sandwiches, and desserts in California since 1985. This casual dining restaurant, led by their chief financial officer Susan Collyns, brought appealing results for CPK’s second quarter in 2007. CPK has 200+ locations opened in different states and international franchises in foreign countries. Their main source of income comes from sales, royalties from franchised restaurants and Kraft foods. However, despite impressive results, CPK’s share price dropped by 10 percent. The company now needs to take amends in different decisions such as repurchasing shares or taking other factors into account to increase the range of obtaining new customers. 1. In what ways can Susan Collyns facilitate the success of CPK? We see that there are couple potential ways for Susan to facilitate CPK’s success. Firstly, we know that CPK is very successful overseas with different locations opened internally. Thus, we suggest that they should continue their expansion to make CPK’s name known globally. With this idea in mind, we also noticed that they barely invested any of its sales on advertisement compared to other casual dining competitors. Advertisement by...

Words: 1079 - Pages: 5

California Pizza Kitchen

... that would require the company to change its financial structure through the use of debt financing. This would represent a marked change for the company, which has avoided putting any debt on its balance sheet since going public in 2000. The purpose of this analysis is to study the firm’s strategy and business risk through the use of Porter’s five forces and to analyze the proposed recapitalization. Porter’s Five Forces Porter’s five forces is a framework that models an industry being influenced by the five forces of supplier power, buyer power, threat of substitutes, barriers to entry, and rivalry. The model shows the competitive nature of the industry and thus the attractiveness of a certain market due to the general profitability. The framework for the restaurant industry and how that affects California Pizza Kitchen is described below: 1. Supplier power The amount of supplier power can be determined by the amount of suppliers in the industry. If a certain industry has very few suppliers, a company in this industry has few alternatives and may have to accept a higher price from a certain supplier if it wishes to compete in the industry. This gives each supplier more power to choose who they sell to and for what price. On the other hand, if an industry has a large amount of suppliers, a company in that industry would have several suppliers to choose from and would be less willing to accept unfavorable terms from any specific supplier, leaving each supplier......

Words: 1421 - Pages: 6

California Pizza Kitchen

...California Pizza Kitchen November 16, 2013 ABSTRACT The purposes of this case study are to discuss the main issues of CPK (California Pizza Kitchen) and think critically to find solutions to the current situation. In order to achieve these purposes, we first analyze time frame of the CPK’s establishment and recent development to find the absolute advantages and disadvantages of CPK compared with its competitors. According to our calculation, we will discuss whether to use moderately levering up CPK’s equity. Finally, a more suitable and profitable model will be established to improve the competitiveness and market share percentage of CPK. Key words: time frame, stay power, levering up, and debt INTRODUCTION California Pizza Kitchen (CPK) was a casual dining restaurant that co-founded by Larry Flax and Rick Rosenfeld in 1985 in Beverly Hills. California. Larry Flax and Rick Rosenfeld both hold the title of co-present, co-CEO, and co-chairman of the Board of Directors for CPK. It is known for its health-baked barbeque-chicken pizza, the “designer pizza at off-at-the-rack prices” concept flourished. By 2007, the company expanded its chain to 213 locations in 28 states (about 41% in California) and 6 foreign countries. The casual dining model had won much brand awareness and brand loyalty with its family-friendly surrounding, excellent ingredients, and inventive offering. The current core customers of CPK had an average household income of $75,000...

Words: 2100 - Pages: 9

Bus 694 Week 1 Proposed International Business Acquisition

...BUS 694 Week 1 Proposed International Business Acquisition Purchase here http://chosecourses.com/BUS%20694/bus-694-week-1-proposed-international-business-acquisition Description ASHFORD BUS 694 Week 1 Proposed International Business Acquisition Proposed International Business Acquisition. Review the requirements of the Final Assignment in Week Six. This Week One assignment is the first step in creating the comprehensive Final Proposal that will be due in Week Six. Carefully select the three countries you will chose to analyze because you will be using these countries throughout the course. Dorchester, Inc. is a U.S. based conglomerate. They have seen a marked trend towards their competition expanding operations internationally. Dorchester, Inc. is interested in purchasing a company that specializes in consumer electronics. Research three potential takeover targets that are based in three different countries and have substantial operations overseas. Provide a three to five page (excluding title and reference pages) economic assessment to Dorchester, Inc. management regarding the pros and cons of buying a company that is based in each of the three countries. Use non-course materials to support your contentions and supporting documentation as necessary. In addition to the requirements above, your paper: Must be double-spaced and 12 point font. Must be formatted according to APA style. Must reference two scholarly resources...

Words: 684 - Pages: 3

California Pizza Kitchen

...Introduction California Pizza Kitchen (CPK) is a restaurants services company that operates a casual dining chain, with a particular focus on the premium pizza segment. In 1985 the California Pizza Kitchen was created by Rick Rosenfield and Larry Flax in Beverly Hills, California.Rosenfield and Flax both hold the title of Co-President, Co-CEO, and Co-Chairman of the Board of Directors for California Pizza Kitchen. The company is headquartered in Los Angeles, with 213 retail locations in the US and abroad. The operating profit of the company was $22 million during fiscal year 2007, a decrease of 28.3% compared with 2006. The net profit was $15million, a decrease of 29.5% compared with 2006. California Pizza Kitchen derived its revenues from three sources: sales at company owned restaurants, royalties, from franchised restaurants, and royalties from a partnership with Kraft Foods to sell CPK-branded frozen pizza in grocery stores. California Pizza Kitchen is in the food industry business. California Pizza Kitchen is a casual dining restaurant chain that specializes in innovative and non-traditional pizzas. California Pizza Kitchen also provides various soups, salads, pasta, sandwiches, and desserts at higher quality for lower prices. California Pizza Kitchen is in 213 locations in 28 states (41% located in California). California Pizza Kitchen’s core patrons tend to have an average household income of $75,000 (survey results from 2005); creating less of an...

Words: 2704 - Pages: 11

California Pizza Kitchen

...Introduction California Pizza Kitchen (CPK) was founded by Rick Rosenfield and Larry Flax in 1985 in Beverly Hills, California. With the concept of “designer pizza at off-the-rack price” and their inventive food, CPK soon stood out in the casual dining companies and has grown into an international giant in the next two decades. The company had 213 branches located in America and other 6 foreign countries in the middle of 2007. In the first quarter of 2007, CPK achieved 4.7% increase in store sales (Exh. 4), which is a superb performance compared with his competitors. The company remained consistency in the 2nd quarter and earned a 16% increase in revenue. Owing to the strong performance of the first two quarters, CPK decided to open 16 to 18 branches in the second half of 2007, and a capital expenditure of $85 million is required for the expected expanding plan. Susan Collyns, the Chief Financial Officer of the company, needs to make decisions to find an optimal capital structure for CPK. Before 2007, CPK was a company with zero debt. To benefit from the debt financing, CPK decided to level up the leverage by carrying out a shares repurchasing plan. The first part of the report will analyse the effect of the repurchase plan through the changes in return on equity (ROE), cost of capital and share price and emphasize how debt add value to the company. The recommendations on the capital structures will be made based on the analysis. The second part will discuss the effect on...

Words: 4214 - Pages: 17

California Pizza Kitchen

...California Pizza Kitchen (CPK) was co-founded in 1985 in Beverly Hills, California by Rick Rosenfield and Larry Flax. Rosenfield and Flax both hold the title of Co-President, Co-CEO, and Co-Chairman of the Board of Directors for California Pizza Kitchen. Susan Collyns, Chief Financial Officer, currently leads the financial team at California Pizza Kitchen which is faced with reducing the corporate income-tax liability while balancing the goal of the management team to grow the business. California Pizza Kitchen is in the food industry business. California Pizza Kitchen is a casual dining restaurant chain that specializes in innovative and non-traditional pizzas. California Pizza Kitchen also provides various soups, salads, pasta, sandwiches, and desserts at higher quality for lower prices. California Pizza Kitchen is in 213 locations in 28 states (41% located in California). California Pizza Kitchen’s core patrons tend to have an average household income of $75,000 (survey results from 2005); creating less of an impact on patron’s dining habits during times of inflated gas and food prices. California Pizza Kitchen’s inventive menu was not the only draw-in for patrons, their below average check (usually around $13.30) was much lower than their competitors such as, The Cheesecake Factory, Olive Garden, P.F. Chang’s, Chili’s, Red Lobster, and Panera Bread to name a few. The California Pizza Kitchen chain was labeled by RBC Capital Markets as the “Price-Value-Experience...

Words: 455 - Pages: 2