In what is considered as the biggest foreign acquisition of a Russian company, Pepsico Inc. (PEP - Free Report) recently announced the completion of the acquisition of Russia's leading branded food and beverage company Wimm-Bill-Dann Foods OJSC.
Wimm-Bill-Dann produces dairy products, juices, mineral water and baby food.
In December last year, Pepsico had made a bid of $5.4 billion for Wimm-Bill-Dann Foods to acquire the dairy and fruit juice company. In the first stage the retail-giant acquired 66% of Wimm-Bill-Dann’s stock from the company’s main shareholders and treasury stock for $3.8 billion. The acquisition increased PepsiCo's total ownership of Wimm-Bill-Dann's ordinary shares to approximately 77%.
In July 2011, Pepsi had announced that it would buy the remaining 23% of Wimm-Bill-Dann Foods and delivered a ‘squeeze-out demand’ notice to Wimm-Bill-Dann Foods, stating that all registered holders of ordinary shares as on August 15, 2011 will be entitled to receive 3,883.70 Russian rubles per share, similar to the price that was offered to WBD shareholders in PepsiCo's recently completed tender offer in Russia.
The deal helped acquire several attributes sought by the international consumer goods group, including exposure to emerging markets and more nutritional products. Upon completion of the deal, the global soft drinks and beverage giant owns the largest food-and-beverage business in Russia. The retail giant will henceforth enjoy a strong foothold in the fast-growing Eastern European and Central Asian markets. This brings the company closer to its strategic goal of building a $30 billion nutrition business by 2020.
Both the beverage retail giants, Pepsi and Coca Cola Company (KO - Free Report) are keen on expanding business in the Russian market, whose economy is estimated to grow by 3.8% in 2011. However, both these companies forecast Russia’s dairy market to expand at a low-double-digit rate for at least the next three years.
New York-based PepsiCo entered the Russian market in 1974 and has pumped $3 billion into the market in the past decade. Just before this deal, Pepsi took over 75.53% of Lebedyansky, Russia's leading juice producer, for $1.4 billion.
Pepsi Leads Dow Jones Sustainability Indexes
Separately, Pepsico has been included in the 2011 Dow Jones Sustainability Indexes (DJSI). PepsiCo managed the top position in the DJSI Food and Beverage Supersector. The company was ranked on top as a reward for its strides in its Performance with Purpose journey and its devotion across the fields of Human, Environmental and Talent Sustainability.
A strong new product pipeline, robust international sales and on-going productivity enhancement initiatives are all positives for PepsiCo. However, we are concerned about Pepsico’s vulnerability to currency translations, and the apprehension that the company could be facing an inflationary impact of approximately $1.4 billion to $1.8 billion.
Currently, we prefer to be ‘Neutral’ on the stock. Furthermore, Pepsi holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.