Pepsi develops its thirst for Russian assets

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By:
Guy Norton
Published on:

Highlights growing importance of food sector; Part of growing M&A trend

US food and drink company PepsiCo has highlighted the strategic importance of the Russian market for big global companies with its plans to acquire a controlling stake in juice and dairy firm Wimm-Bill-Dann that will transform its position in the fast-growing beverages sector. Following the purchase, the Russian juice market will effectively be divided between Pepsi and its arch-rival, Coca-Cola.

In early December Pepsi announced a bid worth $3.8 billion for a 66% stake in Wimm-Bill-Dann, with an option to acquire the rest at a later date. The offer price for the majority stake valued the total company at $5.7 billion and was a 32% premium to outstandings when news of the planned acquisition was announced. Wimm-Bill-Dann stock surged on the news of the takeover bid, with the company’s Moscow-listed shares jumping 58% on the back of heavy trading volumes.

The transaction will establish PepsiCo as the largest food and beverage business in Russia and build on its presence in key markets in eastern Europe and central Asia. It also will raise PepsiCo’s annual global revenues from nutritious and functional foods from roughly $10 billion to $13 billion as part of its goal to build a $30 billion nutrition business by 2020.

Indra Nooyi, PepsiCo chairman 

"Adding Wimm-Bill-Dann to PepsiCo’s portfolio is financially attractive and gives us a strong, high-growth platform in the dairy category"

Indra Nooyi, PepsiCo

"Adding Wimm-Bill-Dann to PepsiCo’s portfolio is financially attractive and gives us a strong, high-growth platform in the dairy category," says Indra Nooyi, PepsiCo chairman. "It also gives us clear leadership in the food and beverage industry in Russia, a fast-growing, strategically important market offering abundant opportunity."

The deal, which will require approval by the Russian government, will make Russia Pepsi’s biggest market outside the US, giving it control of 49 factories and 31,000 employees in Belarus, Russia, Ukraine and central Asia. Wimm-Bill-Dann was the last big independent player on the juice market after Pepsi’s acquisition of Lebedyansky in 2008, and Coca-Cola’s acquisitions of Nidan Soki earlier this year and Aquavision in 2007.

Wimm-Bill-Dann had already been a focus for global food companies; French dairy group Danone previously bought an 18.4% share in the company when Wimm-Bill-Dann launched an initial public offering in 2002 as the first Russian food company to list on the New York Stock Exchange. Danone sold its stake in October for $470 million to comply with competition rules so it could buy Unimilk, another Russian dairy company.

Commenting on PepsiCo’s acquisition plans, Thies Ziemke, managing partner at ParusKreml Capital Management in Moscow, who runs the Sokol Russian Equity Opportunity Fund, says: "PepsiCo’s move is symbolic for the new boldness of international investors after the crisis. And it underlines the growing importance of the Russian food sector, both in terms of production and consumption." He adds that the premium offered by Pepsi indicates the "real value of Russian assets".