Pepsi to buy Russia’s WBD in biggest foreign foray

By Maria Kiselyova and Martinne Geller

MOSCOW/NEW YORK (BestGrowthStock) – PepsiCo Inc (PEP.N: ) will buy control of Russian juice and dairy company Wimm-Bill-Dann (WBD.N: ) for $3.8 billion, its most ambitious overseas purchase, making it Russia’s largest food and beverage maker.

The New York-based maker of Pepsi-Cola, Frito-Lay snacks and Quaker oatmeal will also offer to buy the remaining shares of Wimm-Bill-Dann after the initial deal closes, as it expands beyond carbonated drinks and potato chips. Including $1 billion in debt, Pepsi values the entire Russian company at $5.4 billion.

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 percent. Pepsi shares slipped 0.9 percent to $65.01 in New York trading.

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.

Most large consumer products makers, from Pepsi to Kraft Foods Inc (KFT.N: ) to Procter & Gamble Co (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.

But Terentiev said the Wimm-Bill-Dann deal could hit regulatory snags, since it would give PepsiCo control of more than 50 percent of the Russian juice market. Lebedyansky, which Pepsi bought in 2008 for nearly $1.7 billion, already controls about 32 percent of the juice market.

PepsiCo Chief Financial Officer Hugh Johnston said he expects to clear any regulatory hurdles and sees the deal closing by the second quarter.

BOOST FOR RUSSIA AND HEALTHY DRINKS

This deal is one of the biggest foreign investments in Russia outside the energy sector. French car-maker Renault (RENA.PA: ) paid $1 billion for a 25 percent stake in Russian carmaker AvtoVAZ (AVAZ.MM: ) in early 2008, and has since pledged further investment in the form of technology.

Coca-Cola Co (KO.N: ) bought Nidan, Russia’s fourth-largest juice maker, earlier this year.

Russia’s finance ministry expects foreign direct investment into Russia to top $40 billion in 2010 and increase to over $50 billion annually in the next two years. In 2009, FDI fell 41 percent to $15.9 billion in the wake of a global financial markets crisis.

Pepsi’s price of $33 per American depositary receipt for Wimm-Bill-Dann represents a 32 percent premium to their 30-day average trading price.

Renaissance Capital analyst Natalya Zagvozdina said that represented a multiple of 18 times 2010 earnings before interest, taxes, depreciation and amortization.

“This is an unprecedentedly high price for the Russian food market as well as the Russian consumer market as a whole,” Zagvozdina said, which suggests that there is “enormous interest from Western strategic investors.”

Wimm-Bill-Dann recently bought back an 18.4 percent stake in the company from Danone (DANO.PA: ), following the French company’s merger with Russia’s Unimilk.

PepsiCo said the deal, which is expected to dilute reported earnings in 2010 and 2011 and add 8 cents to earnings per share in 2012, will raise its annual global revenue from nutritious foods — such as oatmeal, juice and yogurt — to nearly $13 billion from around $10 billion.

It also brings it closer to its goal of generating $30 billion in revenue from nutritious products by 2020, as Pepsi seeks to capitalize on consumers’ growing health-consciousness.

Under Russian law, PepsiCo will have to make a mandatory offer to minority shareholders at conditions that are no worse than those at which the 66 percent stake is being purchased.

(Reporting by Martinne Geller in New York and Maria Kiselyova in Moscow; Additional reporting by Maria Plis; Editing by Michele Gershberg, Dave Zimmerman and Tim Dobbyn)

Pepsi to buy Russia’s WBD in biggest foreign foray