Pepsistroika
December 9th, 2010For those of you who have read my blog, you know that I am generally skeptical of of acquisitions (see Great Shareholder Ripoff and Why M&A Deals Go Bad), and even more so when it comes to foreign acquisitions in developing markets like Russia (see Doing Business in a Developing Country or Russia and the BRICs).
Given that background, you probably might have guessed that my initial reaction to Pepsi’s recently announced acquisition of Wimm-Bill-Dann would have been that it was a terrible idea (see Pepsi’s Russian Challenge). However, if you thought that about this acquisition, you’d have been mistaken…
Pepsico’s special relationship with Russia began in 1959. Richard Nixon was showing Nikita Khrushchev around the American National Exhibition in Moscow. He made him stop at a kiosk hawking Pepsi-Cola. A young executive named Donald Kendall thrust a cup of dark fizz into the Soviet leader’s hands…
Half a century later, Mr Kendall, who later became Pepsi’s chief executive, flew back to Moscow with Indra Nooyi, who has the job today, to receive Vladimir Putin’s blessing for Pepsi’s takeover of Wimm-Bill-Dann, Russia’s biggest food company. They won the Russian president over by talking about the billions of dollars Pepsi has invested in Russia. It was the first American consumer-goods maker to enter the Russian market, 15 years after Khrushchev first sipped its wares. On December 2nd Pepsi announced that it would buy 66% of Wimm-Bill-Dann for $3.8 billion and launch a mandatory tender offer for the rest of the company.
Just to prove that I don’t think all acquisitions in developing markets are a bad idea, I really do believe that this one stands a chance.
Provided that Pepsi did not overpay for Wimm-Bill-Dann, Pepsico should be able to profitably leverage its 30+ years of operational experience in Russia, along with its strong global distribution network to increase Wimm-Bill-Dann’s sales. In addition, it should be able to derive value from Wimm-Bill-Dann by combining it with Nidan Lebedyansky (its previous acquisition in Russia) to capitalize on the fast-growing Russian alternative/nutritional beverage market.
My call then: Better than 50/50 odds of success.
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December 13th, 2010 at 1:10 pm
I do remember Pepsi from my childhood in Russia (late 80′s/early 90′s) and don’t remember Coke. Also, there were some catchy Wimm-Bill-Dann commercials in the mid-90′s. At least in terms of brand awareness this deal makes sense. Time will tell.
December 14th, 2010 at 3:54 pm
[...] contrast with Pepsi, which deepened its involvement in Russia by acquiring Wimm-Bill-Dann (see Pepsistroika), Wal*Mart has decided to forego opportunities in Russia for the time being (see Wal*Mart Closes [...]
December 14th, 2010 at 6:06 pm
[...] Pepsi (PEP), which deepened its involvement in Russia by acquiring Wimm-Bill-Dann (WBD) (see "Pepsistroika"), Wal-Mart (WMT) has decided to forego opportunities in Russia for the time being (see [...]
December 14th, 2010 at 8:43 pm
[...] Pepsi (PEP), which deepened its involvement in Russia by acquiring Wimm-Bill-Dann (WBD) (see “Pepsistroika“), Wal-Mart (WMT) has decided to forego opportunities in Russia for the time being (see [...]
December 23rd, 2010 at 10:13 am
Hey Rob & Roman,
It’s true, Pepsi has ancient history to draw on in Russia. The company had a monopoly on soda provision in the old USSR. There was a barter arrangement with Stolichnaya, and possibly fur trade, if memory serves me right.
But they were caught completely flat-footed when communism collapsed. Coca Cola grabbed huge swaths of the market from them in just a few years. Amazing that the company is still playing catch up now. I’d love to see current market share data.
December 23rd, 2010 at 10:37 am
Interesting Charlie.
My understanding, at least from a 2007 NY Times article is that you’re right with respect to market share – Coke currently has the market share lead in Russia (see http://www.nytimes.com/ref/business/20070527_COKE_GRAPHIC.html). And yes, this is a bit of catch-up move on Pepsi’s part in response to some previous moves by Coke.
January 7th, 2012 at 9:27 pm
[...] I think that analysis is pretty spot on. This agreement allows a combination of Aujan’s local expertise with Coca Cola’s branding and distributional capabilities. If they are able to successfully avoid the kind of partner conflict that often scuttles alliances of this sort, Coca-Cola and Aujan will be able to work together to enhance the sales of Aujan’s products by leveraging Coca-Cola’s 80+ years of international experience and existing distribution network throughout the Middle East. In fact, it is similar to the Pepsi Wimm-Bill-Dann deal – another deal that I liked (see Pepsistroika). [...]