Pepsi swoop shows thirst for Russia consumer deals

By Maria Kiselyova

MOSCOW (BestGrowthStock) – PepsiCo’s (PEP.N: ) mammoth acquisition of Wimm-Bill-Dann (WBD.N: ) has raised expectations for more deals in Russia, boosted by strong belief in consumer growth and an improving investment climate, analysts said.

PepsiCo said on Thursday it plans to buy control of the Russian juice and dairy company for $3.8 billion and will later offer to buy the remaining 34 percent as it continues to expand into emerging markets and healthier products.

It came as a counter-attack to rival Coca-Cola’s (KO.N: ) acquisition of Russia’s No.4 juice maker Nidan this year which put Coke ahead of PepsiCo in their long-running battle for dominance in the Russian market.

“We are very enthused by this deal. It completely vindicates our argument that the Russian consumer sector remains an interesting high-growth destination for foreign capital,” said Kingsmill Bond, chief strategist at Moscow-based asset manager and investment bank Troika Dialog.

“We are now looking at other companies that could be targeted,” he told Reuters.

Analysts have named vodka maker Synergy (SYNG.MM: ), drugmaker Veropharm (VFRM.MM: ), food retailer Dixy (DIXY.MM: ), restaurant chain Rosinter (ROST.MM: ), cosmetics maker Kalina (KLNA.MM: ) and electronics retailer M.video (MVID.MM: ) as attractive targets.

Russia’s consumer sector is recovering after being severely hit by the economic crisis of 2008-09, and is likely to see another boom if global prices for oil — Russia’s chief export — continue to rise.

Together with rising disposable incomes, the advance toward a more consumerist lifestyle among a population of 140 million creates lucrative opportunities for international consumer giants looking for growth, as sales in western markets stall.

RARE CHANCE

PepsiCo will pay a 32 percent premium to the market price, which analysts say is justified by Wimm-Bill-Dann’s leading market position.

“The premium was music to our ears. There are not too many opportunities to get a market-leading position in one of the world’s top 10 consumer markets. You have to pay for it,” said Troika’s Bond.

U.S. retailer Wal-Mart (WMT.N: ) has long been linked to potential targets in Russia, and media reports suggested last month it renewed talks to buy grocer Kopeika.

Other consumer giants, such as Unilever (ULVR.L: ) (UNc.AS: ), Kimberly-Clark (KMB.N: ) and McDonald’s (MCD.N: ), have this year moved to expand their presence in Russia, praising the growth potential and favorable regulatory marketplace conditions.

And Russia-focused fund manager Prosperity Capital told Reuters in an interview this month Russian companies are becoming more welcoming to foreign shareholders.

“We think the deal underpins a bullish case for the Russian consumer sector, and indicates the positive attitude of the state and the regulator toward international investors,” Renaissance Capital analysts wrote in a note.

(Additional reporting by John Bowker; Editing by David Hulmes)

Pepsi swoop shows thirst for Russia consumer deals