Pepsi Pays $1.4Bln For Juice Company

PepsiCo said Thursday that it would pay $1.4 billion to buy Lebedyansky, the country's largest juice manufacturer, in an effort to step up beverage production in Russia, its biggest growth market.

The U.S. soft drink and snack giant will acquire a 75.53 percent stake in Lebedyansky, which is currently held by its four largest individual shareholders, together with its bottling and distribution partner, The Pepsi Bottling Group, or PBG, the companies said in a statement.

The transaction, which represents the largest foreign investment in the country's soft drink market, would exclude Lebedyansky's baby food and mineral water businesses, which are to be spun off to the company's current shareholders.

Both the acquisition and the spinoff are to be completed in the fourth quarter of the year, with the cost of the purchase to be split 75-25 by PepsiCo and PBG, respectively, the statement said.

Michael White, PepsiCo International chief executive, said in the statement that the companies were committed to "investing in Lebedyansky's brands and building an even brighter future for the company."

"This agreement provides us with a strong platform for continued expansion in one of the world's fastest growing juice markets and advances the global transformation of PepsiCo's product portfolio," White said.

With production facilities in Lipetsk and St. Petersburg, Lebedyansky has an estimated 30 percent share in the country's juice market.

The juice maker, known for its Ya, Tonus and Fruktovy Sad brands, reported annual revenue of $800 million in 2007 from its juice business.

Eric Foss, president and chief executive of PBG, said Russia was the company's biggest growth market and that the company was "making smart investments" that would further enhance its business across the country.

The offer effectively values Lebedyansky at $2 billion, including debt and spinoff-related adjustments and excluding the company's baby food and mineral water business.

Yury Bortsov, Lebedyansky chairman and one of the shareholders selling their shares, the U.S. firms "will bring significant investment and distribution strength and ensure that this company remains a strong, vibrant competitor."

Thursday's transaction is the second major acquisition in Russia within a week by the soft drink giant.

On Monday, the U.S. firms authorized PR Beverages Limited, the PepsiCo and PBG joint venture in Russia, to acquire 100 percent of Sobol-Aqua, a privately held beverage manufacturer.

The transaction, which the companies said would accelerate growth opportunities in Siberia and eastern Russia, is expected to close in the second quarter of this year. Financial details of the Sobol-Aqua deal were not disclosed, but the companies said the joint venture would acquire the entire Sobol enterprise, which includes a production facility in Novosibirsk that manufactures Sobol brands and currently co-packs various Pepsi products.

The Lebedyansky and Sobol-Aqua acquisitions may not lead to a dramatic drop in consumer prices for juice and soft drinks, but will benefit the sales of Lebedyansky brands, analysts said.

"The upside for Pepsi is that it would be able to use the distribution networks to sell its other products," said Brady Martin, an analyst at Alfa Bank. "The purchase could also give Pepsi an edge over competitors like Coca-Cola, which has also been expanding its facilities in Russia."

PepsiCo, which includes Tropicana Products, Frito-Lay and Pepsi-Cola Company, the world's second-largest beverage company, built its first Pepsi-Cola bottling plant in Novorossiisk in 1974, the first Western-branded consumer product to be produced in the Soviet Union. PepsiCo currently operates five soft drinks plants in the country and produces snacks, including Lay's and Cheetos chips, at a facility in Kashira, near Moscow.