PepsiCo to acquire 66% of Russia's Wimm-Bill-Dann for $3.8 billion

PepsiCo, one of the world's largest food and beverage companies, and Wimm-Bill-Dann Foods OJSC, Russia's leading branded food-and-beverage company, on December 2 announced that PepsiCo has agreed to acquire 66 percent of Wimm-Bill-Dann for $3.8 billion, pending the required government approvals. In connection with this acquisition, PepsiCo will offer to acquire the remaining shares of Wimm-Bill-Dann through an offer following completion of that acquisition at such time and on terms as are mandated by Russian law, and PepsiCo may acquire additional shares in other transactions.

Wimm-Bill-Dann is a leader in both traditional and value-added dairy products, with a solid position in juice. The transaction will establish PepsiCo as the largest food-and-beverage business in Russia, make it a leader in the country's fast-growing dairy category and build its presence in key markets in Eastern Europe and Central Asia. It also will raise PepsiCo's annual global revenues from nutritious and functional foods from approximately $10 billion today to nearly $13 billion. This moves the company closer to its strategic goal of building a $30 billion nutrition business by 2020.

"Adding Wimm-Bill-Dann to PepsiCo's portfolio is financially attractive and gives us a strong, high-growth platform in the dairy category," said Indra Nooyi, PepsiCo chairman and chief executive officer. "It also gives us clear leadership in the food-and-beverage industry in Russia, a fast-growing, strategically important market offering abundant opportunity. At the same time, Wimm-Bill-Dann's strong, value-added dairy business immediately advances our global nutrition strategy to provide consumers around the world nutritious foods and beverages that are accessible, affordable and advantaged by science. 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."  

"Wimm-Bill-Dann is a terrific business with significant opportunities," said Zein Abdalla, chief executive officer of PepsiCo Europe. "Wimm-Bill-Dann's management team has built an outstanding portfolio of market-leading dairy and juice brands that are loved by consumers across Russia. The combination of Wimm-Bill-Dann and PepsiCo Russia will create a powerhouse business in terms of scale, brand portfolio and system capabilities with the potential to be leveraged across the broader East European and Central Asian region."

Sergei Plastinin, chairman of the Wimm-Bill-Dann board of directors and one of the shareholders who agreed to sell shares to PepsiCo, said: "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. Today, we have over 16,000 people and 38 production facilities. In this time, Wimm-Bill-Dann has created great juice, dairy and toddler and baby food brands that are among the best loved and recognized in Russia and neighboring countries. Today we announced the planned coming together of our company with one of the most successful and best-known global companies. This represents a tremendous vote of confidence in the future of the Russian market. 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."

Terms of the Transaction
Under the acquisition agreement, PepsiCo will acquire 66 percent of Wimm-Bill-Dann from a group of shareholders and subsidiaries of Wimm-Bill-Dann. The approximately $3.8 billion PepsiCo will pay to acquire the stake in Wimm-Bill-Dann implies a total enterprise value of approximately $5.4 billion. The price being paid by PepsiCo to the selling shareholders – $33.00 per ADR share (which is equivalent to $132.00 per ordinary Russian share) – represents a premium of 32 percent to the 30-day average trading price of Wimm-Bill-Dann's ADR shares.  

The acquisition is subject to customary closing conditions, including receipt of certain regulatory approvals.

Financial Impact
PepsiCo indicated the transaction is expected to be modestly accretive to earnings in year one (excluding one-time transaction costs and fees).  PepsiCo expects the combination to have the potential for total pre-tax annual run-rate synergies of approximately $100 million by 2014. The transaction will be funded through a combination of internal cash on hand and short-term debt financing, preserving balance sheet flexibility.

Key Attributes of the Combined Company
The completed transaction, which will be accretive to PepsiCo's top-line and bottom-line growth rates, excluding one-time transaction costs and fees, will bring together PepsiCo's large global food and beverage brands (Pepsi-Cola, Lipton and Lay's), its Russian juice and water brands (Fruktovi Sad, Ya, Tonus, Hrusteam and Aqua Minerale) and Wimm-Bill-Dann's portfolio of leading dairy and juice brands (Domik v Dorevne, Chudo, Imunele, J7, Lubimy Sad, 100% Gold Premium and Agusha).

Upon completion of the full Wimm-Bill-Dann acquisition:

• PepsiCo's brands will rank first among food and beverage companies operating in Russia, with approximately $5 billion in revenue.  PepsiCo will have six of the 20 largest food and beverage brands in Russia, and three of the top 20 overall brands.  
• PepsiCo will be approximately twice the size of its nearest food and beverage competitor in Russia, with an unmatched distribution platform for its products, including over 200,000 coolers.  
• PepsiCo will employ approximately 31,000 people in Russia, Ukraine and Central Asia and have 49 manufacturing facilities, making the company one of the largest food and beverage employers in the region and driving economic growth in an already booming marketplace.
• PepsiCo will have the Russian food and beverage industry's largest and most capable agricultural team, working in partnership with farmers and leading Russian agricultural research institutes to advance farming practices across dairy, fruit, potatoes and grains.

Key Attributes of Dairy Category

• Health and wellness trends around the globe are accelerating, and dairy products offer a number of fundamental health and nutrition benefits, including natural ingredients like calcium and protein, as well as functional benefits like bone health. In developed markets, where the population is aging, these benefits are particularly relevant, and a reason that dairy is far outpacing overall food and beverage growth.
• In developing markets, there's an accelerating trend toward branded and packaged dairy.  
• Dairy has the untapped potential to bridge snacks and beverages, through innovative forms and ingredient combinations.
• In Russia, the dairy market has grown at a compound rate of 22 percent since 2006 to $17 billion, and is expected to grow at a low-double-digit rate for at least the next three years. Over the next five years Russia is forecast to be one of the largest contributors to global dairy growth
   

Key Attributes of Russian Market

• Russia is the 12th-largest economy in the world by nominal value today and the seventh largest by purchasing power parity.
• The Russian economy is expected to become the second-largest European economy behind Germany by 2013.
• Russia has outpaced global GDP growth with a 7 percent compound rate since 1998 and is showing strong signs of recovery from the recent global crisis with GDP up 4 percent this year.  
• Russia has a rapidly growing middle class and an increasingly affluent population – almost 300 million consumers when combined with neighboring markets – which drives growth in branded consumer goods.  
• Positive macroeconomic trends in Russia, including a rising GDP, low inflation and an uptick in consumer spending, has created an attractive operating environment and a consumer products market structure that allows for healthy, sustainable margins.