Allegheny Beverage Corp. said yesterday it has signed an agreement to sell its beverage subsidiary, Allegheny Pepsi-Cola Bottling Co., to PepsiCo Inc. for $160 million in cash.
Allegheny Beverage said it plans to complete the sale in early May and that it will use the proceeds to pay off debt and arrange financing for its $225 million acquisition of Servomation Corp., a food service and vending company.
The two transactions will complete Allegheny Beverage's move out of its original soft-drink business and will create a national multi-service company with annual revenue of $1.2 million, the company said.
In January, Allegheny Beverage said it had signed a letter of intent to sell the beverage subsidiary to an employe stock ownership plan for $175 million.
The company said yesterday it decided against creating an ESOP because proposed legislation "would effectively eliminate certain attractive tax features of the present ESOP law."
Under current law, Allegheny Beverage would pay no tax on the sale of its subsidiary to an ESOP, because it planned to invest the proceeds in another company, through the acquisition of Servomation.
Proposed legislation introduced in both houses of Congress would make corporations ineligible for that tax break, said a Senate Finance Committee staff member. The bills would affect ESOPs formed after March 28, and so would cover the Allegheny transaction, a company spokesman said.
"Our experts tell us the bills are likely to become law," said Harry J. Conn, senior vice president of Allegheny Beverage. "And we don't want to take the chance."
The terms of financing the ESOP purchase also had become uncertain, Conn said. Originally, Allegheny had arranged for a group of third-party investors to finance part of the sale. Allegheny dropped that plan when it became apparent that the investors would assume about 80 percent of the bottling company, thus jeopardizing the tax benefits of creating an ESOP, Conn said.
Allegheny would have preferred to sell the subsidiary to an ESOP for the higher price, Conn said. But the proposed tax changes, other "doubts about areas of ESOP law" and the urgency of completing the Servomation purchase made PepsiCo a more attractive buyer, he said.
"Although these transactions have taken a little longer than originally expected, they are now falling nicely into place," said Allegheny Beverage Chairman and President Morton M. Lapides. "The Servomation acquisition continues to be our major objective for accelerated growth in the service industry."