PepsiCo Inc won over its two largest bottlers by raising its takeover offers more than 20 percent to $7.8 billion, giving investors a welcomed but not unexpected windfall.

PepsiCo said it will pay $36.50 per share for Pepsi Bottling Group Inc and $28.50 per share for PepsiAmericas Inc . That is up from its April bids of $29.50 per share for Pepsi Bottling and $23.27 per share for PepsiAmericas.

The market was betting on mid-$30s price for Pepsi Bottling and a mid-to-high-$20s price for PAS, so the final offer is actually at or slightly higher than expectations, said one arbitrageur who declined to be named because he was not authorized to speak to the media.

PepsiCo had tried to argue that its previous bids were 'full and fair' but now the offers finally are close to that, the arbitrageur said.

PepsiCo, which already owned stakes in the bottlers, said buying the remaining shares it did not already own would consolidate 80 percent of Pepsi's North American beverage volume. That would speed the decision-making process and eliminate friction between the companies, PepsiCo said.

The shares of both Pepsi Bottling Group and PepsiAmericas had been trading above the initial offer price, indicating investors expected a higher offer to emerge.

The share prices of both Pepsi Bottling Group and PepsiAmericas since the original buyout offer in April reflected that Pepsi would come back with a higher bid, said Paul Foster, an option strategist at Web information site

Large share price gains were already built in both Pepsi Bottling and PepsiAmericas after the deal was rejected in May and thus, option traders refrained from participating because the takeout valuations were already built in.

The existing option contracts held by investors in Pepsi Bottling are concentrated on the $30 and $35 call strikes granting investors the right to buy Pepsi Bottling shares at $30 and $35 apiece, respectively, by August expiration.

On the put side, the contracts outstanding lie in the strikes allowing investors to sell PBG shares at $25 and $30 a piece, mainly by September expiration.

The August calls at the higher strikes of $30 and $35 indicate the impasse between the companies, that the current board (PBG) would not agree to a $29.50/ share price and a premium would be required, said Steve Claussen, chief investment strategist at online brokerage OptionsHouse in Chicago.

The put activity, especially in the September $25 put strikes with 12,354 outstanding contracts, represented the fear Pepsico would walk away and, the Pepsi Bottling share price would crumple as the company has a ton of debt and its valuation without the deal would likely be much lower, Claussen said.

Given that today's premium over the prior bid was 20 percent and the PBG stock is up only 8.3 percent on the acceptance of the increased bid, this is not a huge surprise to the market, Claussen said.

The negotiations concluded faster than some investors expected, however.

We expected this to drag on past Labor Day, so this is a nice surprise. The deals aren't expected to close until late '09 or early 2010, so the time value of money reduces the premium a bit. But it's still a bump from what we expected, said a second arbitrageur, who declined to be named.

The deal is expected to create annual savings of $300 million by 2012 and add about 15 cents per share to its earnings when the savings are fully realized in 2012, PepsiCo said.

The accretion and synergies are below our expectations, but that may change as they get further along with the consolidation process, the second arbitrageur said.

(Reporting by Jessica Hall and Doris Frankel; editing by Andre Grenon)