Pepsi Juices Up in Russia
The deal is a sign that recent efforts by the Kremlin to attract foreign investment are yielding results. Here, a boy drinks Wimm-Bill-Dann's J-7 juice drink in Moscow. Agence France-Presse/Getty Images
The deal, PepsiCo's second-largest acquisition ever after its 2001 purchase of Quaker Oats Co. will establish the U.S. company as the biggest food-and-beverage business in Russia and a leader in the country's fast-growing dairy market. Russia will become PepsiCo's largest market outside the U.S. supplying about $5 billion in annual revenue.
Wimm-Bill-Dann, whose name reflects its founders' love of the Wimbledon tennis tournament, is one of the two largest Russian dairy-goods companies alongside Unimilk, controlled by Groupe Danone SA. The company, which is also No. 3 in juice and No. 1 in baby food, has long been seen as an acquisition target. Its shares are traded in Moscow and on the New York Stock Exchange.
The deal is a sign that recent efforts by the Kremlin to attract foreign investment are yielding results. It also reflects fierce competition between Pepsi and Coca-Cola Co. KO -2.52 % to win consumers in an important emerging market where the two have battled often neck and neck for beverage market share. Pepsi-Cola became the first Western branded consumer product to be made in the Soviet Union in 1974, 15 years after Premier Nikita Khruschev sampled the drink at an exhibition in Moscow.
More recently, the rivalry moved to juices. Coke bought fruit-juice maker Multon Co. for about $500 million in 2005, and Pepsi hit back with a $2 billion acquisition of OAO Lebedyansky in 2009. In September, Coke countered by buying Nidan Soki, another large juice maker, for an undisclosed sum. Coke doesn't market dairy products in Russia.
PepsiCo said acquiring Wimm-Bill-Dann will increase its annual revenue from nutritious and "functional" foods from around $10 billion today to nearly $13 billion, bringing it closer to its goal of $30 billion in annual sales of health-oriented drinks and snacks by 2020.
"It gives us a meaningful position in one of the most attractive global food and beverage categories—the fast-growing dairy category," Indra Nooyi, PepsiCo's chairman and chief executive, said on an investor conference call Thursday.
"This is a great vote of confidence in Russia—a sign that it's open for business," said Tony Maher, WBD's CEO, in an interview.
Russian Prime Minister Vladimir Putin endorsed the deal, a person familiar with the matter said.
PepsiCo will buy 66% of Wimm-Bill-Dann for $3.8 billion. Pending regulatory approval, PepsiCo
would also acquire the remaining shares in the company. PepsiCo said it values the deal at about $5.4 billion, including the assumption of about $1 billion in debt.
The price of $33 per American depositary receipt represents a 32% premium to the 30-day average trading price of Wimm-Bill-Dann. In Moscow trading, the company's stock jumped 40% after The Wall Street Journal broke the news on its website.
The price PepsiCo is paying is seen as rich by some analysts. Danone sold its 18% stake in Wimm-Bill-Dann in late October at a $2.5 billion valuation.
"This high valuation indicates the appetite of multinationals for Russian branded consumer products," Natasha Zagvozdina, an analyst at Renaissance Capital in Moscow wrote in a research report Thursday.
Hugh Johnston, PepsiCo's chief financial officer, said the price was in line with emerging market multiples. "I think we're paying a very fair price" given the company's attractive margins and growth opportunities, he said.
Mr. Maher, himself a former senior executive at Coca-Cola, said PepsiCo first approached WBD about five weeks ago. A person familiar with the matter said the deal traces its roots to a chance meeting this fall at a European industry conference between PepsiCo's Eastern Europe Region President Ramon Laguarta and Mr. Maher.
Mr. Laguarta relayed WBD's interest in a deal to his superiors. PepsiCo, which had coveted the company, moved swiftly to arrange the marriage. The takeover was a negotiated transaction between PepsiCo and WBD, and not an auction, the person familiar with the matter said.
Workers unload a truck of Pepsi products in New York's Hell's Kitchen neighborhood. Reuters
Formed in 1992, Wimm-Bill-Dann was one of the first indigenous Russian companies to produce fruit juice—a brand called J7 that quickly took off, reflecting Russians' thirst both for juice and Western-sounding products. The company later shifted its lineup as Russian tastes turned back to home-grown products, building popular brands such as the dairy range "Domik v derevne"—"little house in the country."
The company became a popular pick among investors seeking exposure to Russia's rapidly-growing consumer market, listing its shares on the New York Stock Exchange in 2002. It now has more than 16,000 employees and 38 production facilities.
Centerview Partners and Morgan Stanley MS -5.42 % advised PepsiCo on the deal, while Davis Polk & Wardwell LLP and Linklaters CIS were its legal advisers. J.P. Morgan was financial adviser for Wimm-Bill-Dann. Latham & Watkins LLP was its legal adviser.
—Gregory L. White contributed to this article.Source: www.wsj.com