PepsiCo to Sell Juice Brands to PAI for About $3.3 Billion
(Bloomberg) -- PepsiCo Inc. is to sell Tropicana, Naked and other juice brands to French private equity firm PAI Partners for about $3.3 billion as it seeks to bolster its balance sheet and focus on healthier snacks and zero-calorie drinks.
The U.S. drinks giant will retain a 39% noncontrolling interest in a new holding company for the brands and has also granted PAI an irrevocable option to buy certain juice businesses in Europe, according to a statement Tuesday.
PepsiCo said it plans to use the proceeds from the deal to strengthen its balance sheet and invest in the wider business.
Paris-based PAI is an experienced investor in the food and beverage space and is behind Refresco, the biggest independent bottler of beverages globally. PAI’s proposed joint venture with PepsiCo is similar to one it created when it merged its R&R ice-cream business with large parts of Nestle’s ice-cream division to create Froneri.
“This joint venture with PAI enables us to realize significant upfront value, whilst providing the focus and resources necessary to drive additional long-term growth for these beloved brands,” PepsiCo Chairman and Chief Executive Officer Ramon Laguarta said in the statement.
“In addition, it will free us to concentrate on our current portfolio of diverse offerings, including growing our portfolio of healthier snacks, zero-calorie beverages, and products like SodaStream which are focused on being better for people and the planet,” he said.
The PepsiCo juice businesses delivered about $3 billion in net revenue in 2020. Chief Financial Officer Hugh Johnston noted in an interview that the margins for the business are lower than PepsiCo’s average, and so the deal will “incrementally benefit margins.”
“The juice category has obviously had some challenges over the past 10 or so years, and recently as the business gained a little bit of momentum and we started to think about where we wanted to prioritize our efforts, we made a decision that it might make sense for someone else to run Tropicana,” Johnston said.
While juice is high in sugar, it’s also natural, contains fiber and has immunity benefits. The French private equity firm, which focuses in consumer goods and especially food and beverage, would find a way to translate that benefit by introducing juice blends, changing product compositions, and focusing on natural hydration, said Maud Brown, head of PAI’s U.S. office.
The deal allows PepsiCo to focus its efforts elsewhere in its portfolio, while still enjoying some of the juice division’s revenue. The Purchase, New York-based company will also continue in a distribution role, Johnston said, with the joint venture selling products to PepsiCo, and PepsiCo distributing to smaller stores and restaurants along with other venues.
PAI’s First U.S. Deal
“PAI has a track record of investing in well-known but under-invested brands, sort of corporate orphans, and give them the right management attention and retelling their stories that may be a little sleepy,” said PAI’s Brown.
Tropicana is the firm’s first standalone U.S. transaction, she added. The firm bought Nestle’s U.S. ice cream business in 2019 in an add-on acquisition through London-based Froneri, its joint venture with the food giant.
PepsiCo shares rose 0.2% to $156.67 Tuesday in New York. The stock was up 5.4% this year through Monday, compared with 17% for the S&P 500 index.
Centerview Partners LLC is financial adviser to PepsiCo, while JPMorgan Chase & Co. is advising PAI. The transaction is expected to close in late 2021 or early 2022.
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