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PepsiCo acquires major Russian dairy and juice producer

December 2, PepsiCo announced another major acquisition in Russia – namely, dairy and juice producer Wimm-Bill-Dann (WBD).

PepsiCo is acquiring a 66% stake for 3,8 billion USD, subject to regulatory approval, and announced plans to buy the remaining stocks in the future, This follows the acquisition in 2008 of Lebedyansky, another major juice producer in the country.

The deal makes PepsiCo the biggest Food and Beverage Company in Russia.

It tightens the juice oligopoly in the Russian market during the last years, Coke and PepsiCo have bought all four biggest juice companies in Russia: Coca-Cola bought Multon (and the market newcomer Aquavision) some years ago and Nidan this year, and Pepsi acquired Lebedyansky in 2008 and now WBD. There are virtually no other major major players left in the market now, with both companies controlling about 90% market share (52% are PepsiCo’s, 37% Coca-Cola’s).

Ironically, the deal was possible only after Danone had to agree to sell its 18% stake in WBD for anti-trust concerns after buying Unimilk, WBD’s strongest competitor in the dairy sector. WBD controls about 20% of the general dairy sector, and 40% of whole milk.

The company acquired now by PepsiCo has an interesting history. It was founded by Russian businessmen in 1992 from a juice business and developed into dairy at the end of the 1990s. In the 90ies was said to have quite close ties with the Russian Mafia through the Trinity group. However in the beginning of the new decade it undertook an effort to open its books to investors and demonstrate transparency, in order to be able to list on the New York Stock exchange in 2002.

Ever since it has acted like any other transnational company, hiring also experienced management staff from its competitors – most prominently Tony Maher, a former Coca-Cola Hellenic senior manager, currently serving as WBD’s CEO.

It also become a regional transnational company: today it has 37 factories in Russia, the Ukraine, Kyrgyzstan, Usbekistan, and Georgia. Still, 93% of sales are realized in Russia (of which 44% in Moscow and the central region).

70% of sales are generated by dairy products, 11 % from infant formula, the rest from beverages – mainly juices. It has about 18 000 direct employees.

The global crisis affected Wimm-Bill-Dann, especially in US dollar terms due to Russian rouble devaluation. However despite the economic challenges, net income in US dollars increased 14.6% to US$116.5 million in 2009 from US$101.7 million in the full year of 2008.

For PepsiCo, the deal is a huge step to build up its position in the “nutrition” business. With the declared aim of building up its global nutrition sales (meaning mainly juices, dairy, and grains) from currently 10 bln to 30 bln USD, the acquisition means a huge, 3 bln step into this direction.

Dairy, in the company’s view, is also an important bridge between its food and beverage divisions. As PepsiCo’s CEO Indra K. Nooyi put it:

“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.”

It remains to see, however, what this deal means for WBD’s over 18.000 workers. For sure PepsiCo will use distribution and sales network synergies with its existing drinks and snacks businesses in Russia. Experts also say it will seem production modernization: RIAN quotes V. Labinov, the executive director of the Russia’s Dairy Union, an employer association as saying that it would “make sense that this acquisition should involve technical retooling. Recent years have seen massive investments in dairy livestock breeding and none in processing. Large investments like this will help Russia move to exporting its dairy products.”

It seems also questionable whether in the long term, PepsiCo will keep all of the 37 factories that WBD is operating at the moment. WBD employees will thus most likely face large scale restructuring in the months and years to come.

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