Last updated: December 2, 2010 2:33 pm

PepsiCo to buy Russia’s Wimm-Bill-Dann

PepsiCo is making a $5.4bn bet on the Russian food and drinks market with a planned acquisition of Wimm-Bill-Dann, the dairy and fruit juice company, in what could be the biggest foreign acquisition of a Russian company.

The US food group is initially acquiring 66 per cent of Wimm-Bill-Dann’s stock from the company’s main shareholders and treasury stock for $3.8bn.

It would make PepsiCo the largest food and drink business in Russia, and increase its presence in other eastern European markets and Central Asia.

The deal ticks off several attributes sought by international consumer goods groups, including exposure to emerging markets and more nutritional products.

It also takes PepsiCo into the dairy segment, which makes up 70 per cent of Wimm-Bill-Dann’s sales.

Indra Nooyi, PepsiCo chairman and chief executive, said: “Dairy has a huge, untapped potential to bridge snacks and beverages. We see the emerging opportunity to ‘snackify’ beverages and ‘drinkify’ snacks as the next frontier in food and beverage convenience”. Subject to regulatory approval for the initial stake, PepsiCo will make a public offer to remaining shareholders. Priced at the same level as its initial two-thirds stake, that would value Wimm-Bill-Dann’s total equity at $5.8bn. Since Wimm-Bill-Dann has $400m net cash on its balance sheet, the enterprise value would be $5.4bn.

The Wimm-Bill-Dann purchase shows multinationals are still prepared to make big acquisitions in Russia, in spite of a sharp fall in foreign direct investment, as the country’s economy contracted almost 8 per cent last year.

Pepsi said the acquisition was part of its strategic plan to build a $30bn nutrition business by 2020.

It follows a shift of focus away from carbonated soft drinks towards juices, teas and sports drinks, as well as healthy foods.

Wimm-Bill-Dann said PepsiCo would market products from its plants in Asia and Europe, including both fruit juice concentrates and some products – such as chocolate-coated Russian cream cheese – until now known only in Russia.

PepsiCo is paying $33 per ADR share, equivalent to $132 per ordinary Russian share, for its initial stake – a 32 per cent premium over the 30-day average trading price of Wimm-Bill-Dann’s ADR shares.

It is paying an enterprise value of 12.6 times 2011 forecast earnings before interest, tax, depreciation and amortisation.

That compares with its own EV/ebitda multiple of below 10 times and is also a 15-30 per cent premium to where food groups Nestlé and Danone are trading.

PepsiCo expects the deal to produce annual pre-tax synergies of $100m by 2014, and to enhance earnings moderately in its first year.

Additional reporting by Haig Simonian in Zurich

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