By GUY CHAZAN, DANA CIMILLUCA And BETSY MCKAY DECEMBER 2, 2010, 4:45 P.M. ET.
PepsiCo Inc. is buying Russian dairy products and fruit-juice maker OAO Wimm-Bill-Dann in a deal valuing the company at $5.4 billion, marking one of the biggest foreign investments in Russia outside the energy sector.
The deal, PepsiCo's second-largest acquisition ever after its 2001 purchase of Quaker Oats Co., will establish the U.S. company as the biggest food-and-beverage business in Russia and a leader in the country's fast-growing dairy market. Russia will become PepsiCo's largest market outside the U.S., supplying about $5 billion in annual revenue.
The company, which is also No. 3 in juice and No. 1 in baby food, has long been seen as an acquisition target. Its shares are traded in Moscow and on the New York Stock Exchange.
The deal is a sign that recent efforts by the Kremlin to attract foreign investment are yielding results. It also reflects fierce competition between Pepsi and Coca-Cola Co. to win consumers in an important emerging market where the two have battled often neck and neck for beverage market share. Pepsi-Cola became the first Western branded consumer product to be made in the Soviet Union in 1974, 15 years after Premier Nikita Khruschev sampled the drink at an exhibition in Moscow.
More recently, the rivalry moved to juices. Coke bought fruit-juice maker Multon Co. for about $500 million in 2005, and Pepsi hit back with a $2 billion acquisition of OAO Lebedyansky in 2009. In September, Coke countered by buying Nidan Soki, another large juice maker, for an undisclosed sum. Coke doesn't market dairy products in Russia.
PepsiCo said acquiring Wimm-Bill-Dann will increase its annual revenue from nutritious and "functional" foods from around $10 billion today to nearly $13 billion, bringing it closer to its goal of $30 billion in annual sales of health-oriented drinks and snacks by 2020.
"It gives us a meaningful position in one of the most attractive global food and beverage categories—the fast-growing dairy category," Indra Nooyi, PepsiCo's chairman and chief executive, said on an investor conference call Thursday.
"This is a great vote of confidence in Russia—a sign that it's open for business," said Tony Maher, WBD's CEO, in an interview.
Russian Prime Minister Vladimir Putin endorsed the deal, a person familiar with the matter said.
Formed in 1992, Wimm-Bill-Dann was one of the first indigenous Russian companies to produce fruit juice—a brand called J7 that quickly took off, reflecting Russians' thirst both for juice and Western-sounding products. The company later shifted its lineup as Russian tastes turned back to home-grown products, building popular brands such as the dairy range "Domik v derevne"—"little house in the country."
The company became a popular pick among investors seeking exposure to Russia's rapidly-growing consumer market, listing its shares on the New York Stock Exchange in 2002. It now has more than 16,000 employees and 38 production facilities.
