PepsiCo plans “tuck-in” acquisitions in nutrition push

Posted by Josette Dunn on 3rd December 2010

PepsiCo is planning further acquisitions as part of its bid to treble sales of “nutritious” food and beverages, the company said yesterday (2 December), after announcing its move to buy Russia dairy, baby food and juice maker Wimm-Bill-Dann.

The US group is aiming to grow sales of healthier food and drinks from a current US$10bn to $30bn by 2020 through expansion in dairy, grains, functional products and fruit and vegetables. The acquisition of Wimm-Bill-Dann will take those sales to $13bn.

Speaking to reporters this afternoon, PepsiCo CFO Hugh Johnston and Mehmood Khan, CEO of the company’s dedicated Global Nutrition Group, said the company would use organic growth, joint ventures and more M&A to hit the $30bn target.

Johnston said the purchase of Wimm-Bill-Dann, the largest dairy processor in Russia and the CIS, was “along the same lines” as PepsiCo’s previous major strategic moves, including the 1965 merger of Pepsi-Cola and Lay’s that created PepsiCo.

“The acquisition of Wimm-Bill-Dann is a transformational opportunity for PepsiCo in Europe. Wimm-Bill-Dann has grown rapidly in the last decade to become the largest [dairy business] in Russia,” Johnston said.

The PepsiCo finance chief explained that PepsiCo’s strategy to grow its nutrition business would involve a “combination” of organic growth, ventures and M&A. He said that further acquisitions were likely to be smaller or “tuck-in” deals, while, particularly in developed markets, PepsiCo would pursue “collaborations” or joint ventures.

PepsiCo’s deal with Wimm-Bill-Dann will involve the Quaker and Lay’s maker initially buying a 66% stake in the Russian firm for $3.8bn. Under Russian law, PepsiCo will then have to make an offer for the rest of Wimm-Bill-Dann’s shares. The agreement values Wimm-Bill-Dann at $5.4bn.

Johnston brushed off suggestions that PepsiCo may have paid too much for Wimm-Bill-Dann. He said the US group had paid a “very fair price” for a “terrific asset with great brands in an emerging market with terrific growth prospects”.

Once the Russian competition watchdog clears the deal – Johnston said PepsiCo “did not anticipate any issues” with regulators – the country will surpass Mexico as the company’s largest market outside the US.

Following the acquisition, Johnston explained, PepsiCo would own six of Russia’s largest food and drink brands and three of its largest brands across the consumer goods industry.

He added: “We see this is a rare opportunity to add strength to strength [and] to create a truly outstanding business in the one of the world’s most attractive consumer markets.”

PepsiCo shares were down 0.9% at $65.01 at 12:57 ET today.

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