Pepsi to buy into Russian juice maker for $1.4 billion

Pepsi to buy into Russian juice maker for $1.4 billion

Pepsi to buy into Russian juice maker for $1.4 billion

PepsiCo Inc and its largest bottler agreed to buy a majority stake in Russia's leading juice producer in another step by the world's No. 2 soft drinks maker to increase its presence in healthier food and beverages.

PepsiCo and the Pepsi Bottling Group (PBG) said in a statement on Thursday they had agreed to buy 75.53 percent of the juice business of Lebedyanskyfor $1.4 billion.

"From the PepsiCo standpoint, this investment represents one of the most exciting steps our company has ever taken internationally," Zein Abdalla, President of PepsiCo Europe, told a news conference.

"With the Russian juice market forecast to grow to become one of the top five in the world sometime in the next decade, we believe the growth potential of this sector is significant."

PepsiCo currently controls about 2 percent of the Russian juice market through the Tropicana brand, but does not have its own juice-producing facilities in Russia. Its rival CocaCola Co. controls over a fifth of the Russian juice sector after its $530 million purchase of producer Multon in 2005.

Lebedyansky has 30 percent of the Russian juice market and its juice sales last year stood at around $800 million. PepsiCo and PBG said Lebedyansky is the world's No. 6 juice producer.

Once Lebedyansky has spun off its other activities, in baby food and mineral water, PepsiCo and PBG will make a mandatory offer to purchase the shares held by all remaining shareholders in Lebedyansky.

In a separate statement, Lebedyansky said its juice earnings before interest, taxation, depreciation and amortization (EBITDA) rose by 9 percent to $118.3 million in 2007.

The EBITDA margin at the business fell by 2.9 percent to 14.7 percent mainly due to higher costs of sales driven by raw material and packaging price inflation.

But gross margin was stable at 40.2 percent, as the company increased selling prices, it said.

Lebedyansky's total 2007 sales rose by 33 percent to $944.8 million, with 85 percent coming from juice. Net profit before minority interest fell by 10 percent to $79.2 million.

Lebedyansky's juice brand portfolio consists of Ya, Frustyle, Tonus, Fruktovy Sad, Privet and Dolka.

CONDITIONAL AGREEMENT

PepsiCo and PBG will buy shares held by Lebedyansky's four individual shareholders, and that stake will be split, with PepsiCo getting 75 percent and PBG 25 percent.

The deal, the largest ever in the Russian food market, will only take place if Lebedyansky's shareholders approve the spin-off of its water and baby food businesses.

"We now need to see the mineral water and baby food spin-off, to get regulatory approval ... we expect the deal to close in the third quarter," Abdalla told Reuters.

PepsiCo did not say how it will finance the acquisition.