Pepsi raised the stakes this week in the global game of high-stakes pop poker.
As we discussed back in June, the game heated up this summer. PepsiCo (NYSE: PEP ) matched Coca-Cola's (NYSE: KO ) 2005 wager on Russian juice maker Multon with a purchase offer of its own for the Ukrainian juice tsar next door, Sandora. That purchase received the final go-ahead from Ukraine's antimonopoly committee on Friday, when it approved Pepsi's $542 million offer for an 80% interest in Sandora.
(By the way, the numbers I posited in working up Sandora's valuation back in June have since been confirmed. The company did indeed book about $200 million in sales in 2006; $212 million to be precise. It also earned about $15 million on those sales. This confirms the company's valuation at 3.2 times last year's sales, and a whopping 46 times earnings.)
Its Sandora deal now essentially locked up, Pepsi raised the stakes this week, taking on Coke on Russian turf. According to Russia's leading business newspaper, Kommersant, Pepsi is in talks to buy a controlling interest in Russia's biggest juice maker, Lebedyansky. If the reports are correct on the details, Pepsi would pay between $1.5 billion and $2 billion for at least 76% of the firm (essentially eliminating minority shareholders' ability to interfere with the company, and limiting them to participating in the profits). Considering that Lebedyansky currently carries a $1.99 billion market cap, boosted a few percent by the news of the potential buyout, it seems the market is betting on the higher figure.
Assuming the rumors are true -- and mind you, Pepsi isn't commenting, and Lebedyansky is denying that talks are taking place, even as its advisor, Deutsche Bank (NYSE: DB ) , talks up the company's prospects -- let's consider what the putative purchase price tells us about how valuations are progressing in this market.
According to Capital IQ, Lebedyansky booked about $600 million in trailing-12-month sales, earning $81.4 million on those sales. A few clicks of the calculator later, we see that the posited price accords Lebedyansky a price-to-sales ratio of 3.3, and a P/E of just under 25. So revisiting our time/value line from back in June, we've got:
- Danone refusing to pay one times sales for Russia's Wimm-Bill-Dann (NYSE: WBD ) in 2004.
- Coke agreeing to pay 1.5 times sales for Multon.
- Pepsi anteing up 3-and-change times sales for first Sandora, and now Lebedyansky.
Looks to me like the old axiom about the early bird getting the low-P/S worm has been proven true.
For further Foolish musings on the Great Game in Russia, read:
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