Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Pepsi's Bigger, but Coke's Smarter

There's an age-old saying in Russia, said to date back to the time of Napoleon's invasion: "Russians take a long time to saddle a horse, but once done, they ride fast."

Thanks to massive investments in automobile manufacturing by Ford, GM, and Toyota, it's getting hard to find equestrian Cossacks to test the second part of that thesis these days -- but the first part sure seems accurate. Fully seven months after we first advised that PepsiCo (NYSE: PEP  ) was in talks to acquire Russia's largest juice maker, the deal finally got done last week. And what a deal it was. Paying $1.4 billion for a 75.5% stake in Lebedyansky, Pepsi is making its second-biggest acquisition ever (behind only the 2001 purchase of Quaker Oats for $14 billion).

The details
Of course, it's getting some help from bottling partner Pepsi Bottling Group (NYSE: PBG  ) , which will team up with papa-Pepsi to do the deal. Also, as it turns out, waiting seven months may have helped the Pepsi twins finagle a better price out of their target. Whereas back in August, we had a 76% stake in Lebedyansky pegged at $1.5 billion to $2 billion in value, it now looks to be as much as 30% cheaper. (That said, Pepsi may still end up paying $2 billion. Russian law requires that it offer to buy out any remaining shareholders after acquiring control of the firm.)

The early bird gets the deal
So what's Pepsi getting for its money? Only Russia's biggest juice maker, commanding a 30% share of a market that is growing at about 15% per year. That works out to $800 million in annual juice sales for Lebedyansky (which also sells some $40 million worth of mineral water and baby food per year, but those operations are getting spun off).

If we assume that the whole firm will ultimately go to Pepsi for $2 billion, the king of pop will be paying 2.5 times sales, and about 23 times the last 12 months of earnings for the company. That seems a fair price if Pepsi can capture the market's sales growth of 15% per year, and bump up earnings growth a bit with some added efficiencies of production. And even if it's overpaying a bit, the fact that Pepsi is leapfrogging Coca-Cola (NYSE: KO  ) in Russian (juice) market share may justify the premium.

Speaking of which, you have to give Coke credit for being the first to saddle up in Russia. Buying No. 2 juicemaker Multon back in 2005, Coke paid a mere 1.5 times sales. And it seems to me the real loser in this race is France's Danone (OTC: GDNNY). Way back in 2004, the yogurt-meister had the opportunity to buy yet another player in the juice game, Wimm-Bill-Dann (NYSE: WBD  ) , for a mere 1 times sales -- and passed. Anybody know what's French for "Doh!"?

For further Foolish musings on the Great Game in Russia, read:

Read/Post Comments (0) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 605093, ~/Articles/ArticleHandler.aspx, 10/21/2016 11:55:16 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
PEP $105.62 Down -0.25 -0.24%
PepsiCo CAPS Rating: ****
KO $42.13 Up +0.20 +0.48%
Coca-Cola CAPS Rating: ****
PBG.DL2 $38.23 Down +0.00 +0.00%
The Pepsi Bottling… CAPS Rating: ***
WBD.DL $0.00 Down +0.00 +0.00%
Wimm-Bill-Dann Foo… CAPS Rating: **