PepsiCo to Become Russia’s Top Food and Beverage Company

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Dec. 3 – PepsiCo will become the largest food and beverage company in Russia by acquiring a controlling stake in juice and dairy giant Wimm-Bill-Dann, which, in turn, will make Russia Pepsi’s biggest international market.

PepsiCo will buy 66 percent of Wimm-Bill-Dann for US$3.8 billion, marking one of the biggest foreign investments ever in Russia outside the energy sector.

Pending regulatory approval, PepsiCo would also have an option to buy the remaining stake through a free-float.

As a result of the deal, Pepsi will have 49 manufacturing facilities and employ some 31,000 people in Russia, Ukraine and Central Asia, making it “the crown jewel of PepsiCo Europe,” Zein Abdulla, chief executive of PepsiCo Europe, told reporters.

The top Russian beverage company, Wimm-Bill-Dann had previously been valued at US$2.6 billion when the French dairy giant Danone divested itself of an 18.4 percent share for US$470 million in October.

Wimm-Bill-Dann, whose juice brands include J7 and Lyubimy, was the last major indigenous independent player on the market after Pepsi’s acquisition of Lebedyansky in 2008, and Coca-Cola’s acquisitions of Nidan Soki earlier this year and Aquavision in 2007.

The company, which is also Russia’s third largest juice maker and biggest baby food maker, has long been seen as an acquisition target. Its shares are traded in Moscow and on the New York Stock Exchange.

Sergei Plastinin, chairman of the Wimm-Bill-Dann board of directors and one of the shareholders, said in company statement:

“The agreement reached with PepsiCo is a historic one for both our company and our country. Wimm-Bill-Dann was founded just 18 years ago with a handful of employees, who were all based in one room, which saw the birth of our company name, our logo and our first juice brand, J7. Integration into PepsiCo also provides our employees with access to a world-class corporate culture and almost unlimited career potential in one of the largest companies in the world.”

“This is a great vote of confidence in Russia—a sign that it’s open for business,” Tony Maher, WBD’s CEO, said in an interview with The Wall Street Journal.

The Russian juice market is now divided between the two American rivals, Alexander Yudin, vice president at the Grandis Capital brokerage, said to The Moscow Times.

Wimm-Bill-Dann owns four out of the five most popular dairy brands in Russia, including Domik v Derevne, Vesyoly Molochnik, Chudo and M.

“Consumption of dairy products is only 25 kilograms per capita per year in Russia — that’s much less than some European countries,” Yudin said. PepsiCo says it expects the Russian dairy market to grow “at a low double-digit rate” for at least the next three years.

PepsiCo says the move is part of fulfilling its declared goal of growing its nutrition businesses to $30 billion by 2020, from about $10 billion today. Acquisition of Wimm-Bill-Dann takes that figure to $13 billion.

PepsiCo opened its first Russian production plant in 1974 and has invested US$3 billion there over the past decade.

Since 2005, Wimm-Bill-Dann has nearly doubled its revenue. The company has 38 manufacturing facilities in Russia, Ukraine and Central Asia with over 16,000 employees.

In 2005, Wimm-Bill-Dann became the first and only Russian dairy producer to receive approval from the European Commission to export its products into the European Union.

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