(Reuters) – PepsiCo Inc (PEP.N) plans to buy control of Russian juice and dairy company Wimm-Bill-Dann (WBD.N) for $3.8 billion, making its most ambitious overseas bet yet.
The maker of Pepsi-Cola, Frito-Lay snacks and Quaker oatmeal will also offer to buy the remaining 34 percent of Wimm-Bill-Dann after the first deal closes, as it continues to expand into emerging markets and healthier products.
The deal will make PepsiCo Russia’s biggest food and drink maker and further the trend of U.S. consumer products companies moving into developing markets where an emerging middle class has a growing appetite for branded goods.
“For consumer products companies, you go where the consumers are, and the new consumers are in countries such as Russia and Brazil,” said Frank Aquila, M&A lawyer at Sullivan & Cromwell.
Including $1 billion of debt, Pepsi values the entire Russian company at $5.4 billion, making this the biggest nonfinancial sector deals on record between a U.S. and emerging market company and the biggest-ever deal in the Russian consumer products sector.
Wimm-Bill-Dann’s Moscow-listed shares (WBDF.MM) soared nearly 61 percent to 3,700 rubles, lifting Russian consumer stocks as well. Its U.S.-traded shares rose 27.9 percent. Pepsi shares slipped 0.7 percent to $65.20 in New York trading.
‘RICH, BUT … NOT STUPID’
Analysts questioned the deal’s multiple of roughly 18 times projected 2010 operating earnings.
“It’s pretty rich, but it’s not stupid money, given the growth opportunities it opens,” Morningstar analyst Philip Gorham said, noting that other deals in the sector — such as Coca-Cola Co’s (KO.N) $4.1 billion purchase of Glaceau — have occurred at similar or higher multiples. “So it’s not cheap, but it’s not daft either.”
The acquisition would make Russia, which will host the 2018 World Cup soccer tournament, the top international market for PepsiCo, replacing Mexico.
Pepsi-Cola was the first Western consumer product introduced to the Soviet Union, some 15 years after former leader Nikita Khrushchev tasted it at the 1959 American National Exhibition in Moscow. Pepsi’s move deeper into the region is a vote of confidence for a country recovering from economic volatility from the global downturn.
Wimm-Bill-Dann’s name, which sounds similar to the Wimbledon tennis tournament, was meant to sound like a foreign brand because of the low reputation of Russia-made products at the time, according to Sergei Plastinin, one of its founders. The company’s brands include J-7 juice and Domik v Derevne milk and dairy products.
Most large consumer products makers, from Pepsi to Kraft (KFT.N) to Procter & Gamble (PG.N), are investing billions of dollars in cultivating fast-growing emerging markets like Russia, China and Brazil, as growth at home slows.
“The PepsiCo/WBD deal is likely to boost M&A expectations in the food retail space, in our view, where talk is mounting of global operators seeking to enter Russia,” Nomura analyst Mikhail Terentiev wrote in a research note.
Other top Russian consumer names that could attract outside investors include vodka maker Synergy (SYNG.MM), drugmaker Veropharm (VFRM.MM) and grocery chain Dixy (DIXY.MM), analysts said.
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