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European Business News – Week ending December 3, 2010

 Breaking News
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  • Process Components Announces Kemutec Expansion into Netherlands Process Components has announced the expansion of subsidiary company Kemutec in Europe, with the long-established manufacturing brand opening a new office in the Netherlands. The move forms a key part of its global strategy to extend its global territories, significantly grow its revenues and create new jobs. Kemutec has more than three decades’ worth of heritage in [...]...
  • Packaging Automation Supports the Reduction in Plastic Packaging Waste With the launch of the UK Plastics Pact to address the impact plastic waste is having on the environment, retailers and manufacturers are more conscious of single use and non-recyclable plastics and want to cater for the green consumer. The industry is turning to various kinds of eco-friendly packaging with the aim of reducing plastic [...]...
  • Glanbia Cheese Joint Venture to Build New €130 Million Mozzarella Cheese Facility Glanbia Cheese, the joint venture business between Glanbia plc and Leprino Foods, plans to build a new, world-class mozzarella cheese manufacturing facility in Portlaoise, County Laois, Ireland. A site for the new facility has been identified at the recently established Togher National Industrial Estate in Portlaoise. A total of €130 million will be invested in [...]...

European Business News – Week ending December 3, 2010

December 03
10:37 2010

The biggest news story of the week was undoubtedly PepsiCo’s surprise $3.8 billion acquisition of a 66% stake in Wimm-Bill-Dann Foods, Russia’s leading branded food and beverages company with leading positions in dairy products, baby food and juice. In addition to making PepsiCo the largest food and beverages business in Russia with a strong presence in the fast growing dairy category, while enhancing its standing in key markets in Eastern Europe and Central Asia, the deal also broadens and improves the ‘healthy’ aspect of PepsiCo’s product portfolio, which has traditionally been dominated by fizzy, sugary drinks and salty snacks.

Indra Nooyi, chairman and chief executive of PepsiCo.

The integration of Wimm-Bill-Dann’s value-added dairy business will immediately advance PepsiCo’s strategy to improve its ‘health and wellness’ credentials. It will raise PepsiCo’s annual global revenues from nutritious and functional foods from about $10 billion to nearly $13 billion, taking it closer to the goal of building a $30 billion nutrition business by 2020.

Dairy products offer a range of health and nutrition benefits. According to Indra Nooyi, chairman and chief executive of PepsiCo: “Dairy has a huge, untapped potential to bridge snacks and beverages.”

$1 Billion Capital Investment

PepsiCo is currently investing $140 million to build its tenth plant in Russia as part of a $1 billion investment programme in the country, announced in 2009. In the previous ten years, PepsiCo invested $3 billion in Russia.

Russia has outpaced global GDP growth with a 7% compound rate since 1998 and is showing signs of recovery from the recent global crisis with GDP up 4% this year. Indeed, Russia is predicted to become the second largest European economy behind Germany by 2013. Russia’s rapidly growing middle class and an increasingly affluent population – almost 300 million consumers when combined with neighbouring markets – are expected to drive growth in branded consumer goods.

Danone’s Russian Move

Danone had previously held an 18.4% stake in Wimm Bill Dann’s since the latter’s IPO in 2002. However, this stake was sold back to Wimm Bill Dann earlier this year for $470 million. PepsiCo has obviously since paid a massive premium to this price.

Franck Riboud, chairman and chief executive of Danone.

The sale was necessary to facilitate Danone in merging its fresh dairy products operations in Russia and other CIS member countries with those of Unimilk. The combined business, controlled by Danone with a 58% stake, is the new leader for dairy products in the CIS area.

Meanwhile, Netherlands registered dairy company Milkiland, which operates in the Ukraine and Russia, is planning to invest Eur83–106 million, including acquisitions, between 2011 and 2013 to expand its interests in the region.

French Resistance

Of course, this is not the first time that PepsiCo has tried to move into dairy. Five years ago the US-based beverages and snacks group was reported to be preparing a bid for Danone. The prospect of such an audacious takeover caused Danone’s share price to rise steeply but also prompted intense opposition from French politicians anxious to stop the dairy and beverages group falling into foreign hands.

Billion-plus Takeover Deals

Also on the dairy front, the Eur1.4 billion bid by French group Lactalis to buy Yoplait and keep the international yoghurt brand in French hands has been rejected. Similarly, another European food business with a billion-plus price tag, United Biscuits, is still in play following the collapse of exclusive talks between its two private equity owners, Blackstone Group and PAI Partners, and Chinese food conglomerate Bright Food Group.

The PepsiCo acquisition was the second multi-billion food industry deal announced during the week. The other transaction entails a private equity consortium including Kohlberg Kravis Roberts, Vestar Capital Partners and Centerview Partners acquiring Del Monte Foods Company, one of North America’s largest producers of branded food products and pet products, for $5.3 billion, including the assumption of approximately $1.3 billion in net debt.

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