Pepsi Bottling Group Inc said on Monday its board has rejected a proposal by PepsiCo to buy the remaining stake in the bottler, citing the offer as grossly inadequate.

PepsiCo previously offered $6 billion to buy the remaining stakes in its two largest bottlers, Pepsi Bottling Group and PepsiAmericas, in an attempt to cut costs and secure more control of its distribution.

Pepsi Bottling's rejection was widely expected and will likely be followed by a similar move by PepsiAmericas, analysts said.

The rejection is just the first step in what could be a lengthy dance among the three companies, said one source close to the situation. PepsiCo and the bottlers have not yet started negotiations, the source said.

PepsiCo offered $29.50 per share for Pepsi Bottling, and $23.27 per share bid for PepsiAmericas, which marked a 17 percent premium over the target companies' closing share prices the day before the offers were made.

The average one-day premium for a so-called squeeze out -- when a company already owns a stake in the target -- is 35.77 percent, according to FactSet Mergerstat. On that basis, PepsiCo offered roughly half the average premium for a squeeze-out deal.

ConsumerEdge Research analyst Bill Pecoriello said PepsiCo could pay about $38 a share, or as much as $44 a share, for Pepsi Bottling Group and still benefit from cost-savings. PepsiAmericas could fetch about $28, Pecoriello said.

Our thesis on PepsiCo is unchanged. We believe these transactions will get done that the bottlers will meet PepsiCo somewhere in the middle, he said.

For example, Pepsi Bottling Group may ask for a price in the low-to-mid $40s, but might settle for something in the $38- per-share range, Pecoriello said.

Pepsi Bottling, whose board has approved adoption of a stockholder rights plan, said the decision was based on the unanimous recommendation of a special committee independent directors.

In a letter to PepsiCo Chief Executive Indra Nooyi, Pepsi Bottling said the soft-drink maker's proposal substantially undervalued the bottler, which beat Wall Street expectations in the latest first quarter and raised its profit and cash flow outlook for 2009.

Your offer is at virtually no premium to market given Pepsi Bottling's first-quarter earnings and upward revision to full-year earnings-per-share and operating free cash flow guidance, Pepsi Bottling said.

Pepsi Bottling also said PepsiCo had substantially understated the synergies that would be available through the proposed combination.

Based on our analysis, we are confident that readily achievable synergies are multiples of the $200 million you referenced, the bottler said in the letter.

ConsumerEdge analysts estimate that PepsiCo could see between $600 million and $800 million in cost-savings from the deal, which suggests the beverage giant has room to raise its bid.

Both PepsiCo and PepsiAmericas were not immediately available for comment. (Reporting by Dhanya Skariachan in Bangalore and Jessica Hall in Philadelphia; Editing by Maureen Bavdek, Dave Zimmerman)