NEW YORK — PepsiCo Inc. is buying a majority stake in Wimm-Bill-Dann Foods for US$3.8 billion, a deal that will make it the biggest food and beverage company in Russia.
The deal is Pepsi’s largest international acquisition ever. It gives the company dominant position in the fast-growing Russian market and furthers its plan to build its global nutrition business.
Combined, the companies will hold six of Russia’s 20 largest food and beverage brands and will be about twice the size of its nearest competitor in the country. PepsiCo said the deal will make Russia its second-largest market behind the U.S.
“This deal makes perfect sense for Pepsi,” John Sicher, editor and publisher of Beverage Digest.
Wimm-Bill-Dann, whose shares are traded in Moscow and on the New York Stock Exchange, produces dairy products, juices, mineral water and baby food.
Founded in 1992 shortly after the breakup of the Soviet Union, it has grown from handful of employees working in one room to launch its first juice brand, J7, to more than 16,000 people and 38 plants in Russia, the Ukraine and Central Asia. The company had revenue of about $2.4 billion for the year ended in June 2010.
Pepsi plans to by a 66 per cent stake in Wimm-Bill-Dann, pending Russian regulatory approval, at $33 per American depository receipt in the company. That represents a 32 per cent premium to the 30-day average trading price. The company said the Russian government supports the investment. Pepsi plans to later offer to buy the rest of the company.
The company said the $3.8 billion deal, announced Thursday, has an enterprise value of $5.4 billion.
“The combination of PepsiCo and Wimm-Bill-Dann will create the crown jewel of PepsiCo Europe,” PepsiCo’s Chief Financial Officer Hugh Johnston told investors.
PepsiCo has a long history in Russia. Pepsi was the first Western consumer brand introduced and sold in the Soviet Union, and it opened a bottling plant in Novorossiysk, Russia in 1974. PepsiCo already sells a number of its drinks and snacks such as Pepsi, Lipton and Cheetos in the country.
The acquisition is part of a larger trend by U.S. food and beverage companies to look to Russia and other emerging markets with rapidly growing middle class populations for growth.
Rival Coca-Cola Co. bought Russian juice producer Nidan for an undisclosed sum in September and has invested $2 billion since the early 1990s into Russia. It plans to invest an additional $1 billion in the next three to five years.
PepsiCo gets about 40 per cent of its revenue from outside the U.S. and Canada. The soft drink and snack maker announced a $1 billion investment program for Russia last year. The company sees the deal as helpful in other emerging markets, including Eastern Europe and China.
PepsiCo leaders expressed enthusiasm about broadening its portfolio with the fast-growing dairy business, which they said has huge untapped potential. Extremely popular in Russia, dairy products also have the potential to bridge snacks and beverages, Pepsi leaders said.
That also furthers the company’s goal to increase its global nutrition group sales from approximately $10 billion today to $30 billion by 2020.
Janney Capital Markets analyst Jonathan Feeney said the deal made sense and strengthens its global opportunities but was concerned about the price tag.
“While this is a good deal, it marginally strengthens an already strong aspect of PepsiCo at substantial relative cost,” he said in a note to investors.
The question now, Feeney said, is how much it cash it can free up in its operations in developed areas.
The acquisition, which also broadens PepsiCo’s presence in Eastern Europe and Central Asia, is expected to modestly add to PepsiCo’s earnings in the first year.
Shares of Pepsi fell 57 cents to $65.06 in early afternoon trading. Shares of Wimm-Bill-Dann traded on the New York Stock Exchange rose $6.52, nearly 27 per cent, to $31.02.