Pepsi-Cola sells Tropicana and Naked Juice brands to private equity firms for $3.3 billion

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Pepsi company update

PepsiCo has agreed to sell a controlling stake in its Tropicana and Naked Juice brands to French private equity firm PAI Partners for $3.3 billion, as it seeks to focus on calorie-free beverages, energy drinks, and products that it claims are better for the environment. For example, as SodaStream.

PAI owns Haagen-Dazs and the Mövenpick ice cream brand in the United States, a joint venture with Nestlé, and it will purchase a 61% stake in a new company that owns the rights to the juice brand. Pepsi will own the remaining 39%.

Hugh Johnston, Pepsi’s vice chairman and chief financial officer, told the Financial Times that the company “is seeking to shift our portfolio to higher growth products.”

He said: “Some of the higher growth comes from healthier categories,” such as light snacks, zero-calorie drinks and SodaStream products, and energy drinks.

“On the other hand, juice has always been a much lower growth category,” and its profit margin is lower than Pepsi’s average, he added.

“We studied Tropicana’s business and said,’This may be best run by others, such as private equity firms, who will focus on business types with lower profit margins and lower growth’.”

Johnston said that PepsiCo decided to retain a minority stake because PAI has a good track record of cooperating with consumer goods companies and has cooperated with Nestlé to develop the ice cream group Froneri.

Frédéric Stévenin, managing partner of PAI, told the Financial Times that Tropicana and Naked Juice were “right and wrong” in moving to healthier products.

“Due to the sugar content, the growth of the juice category has slowed in the past few years,” he said. “Juice contains a lot of natural sugar, but it also has benefits in terms of vitamins and fiber.”

However, he added that as consumers eat breakfast at home and try to boost their immune systems with vitamin C-rich products, sales have risen during the pandemic.

Stevening said this may give the brand “motivate”, and Pepsi’s Johnston said it makes it “a good time for a deal.”

After being spun off from Pepsi-Cola, the enterprise value of this new juice company will reach US$4.5 billion, of which approximately US$2.2 billion is equity and US$2.3 billion is debt. PAI’s share of equity is approximately US$1.3 billion, and PepsiCo is approximately US$850 million.

Pepsi said that the juice brand’s net income in 2020 is approximately US$3 billion.

It added that PepsiCo will use the proceeds from the sale to “strengthen its balance sheet.”

The shift to a healthier portfolio was initiated by Indra Nooyi, the former CEO of PepsiCo, and continued by her successor Ramon Laguarta.

As young consumers increasingly choose healthier or lower-calorie alternatives, large consumer brands such as Pepsi and its rival Coca-Cola are seeking to reduce products with higher sugar content.

Pepsi-Cola acquired SodaStream, which made a device to carbonate water. $3.2 billion deal In 2018.

The American Consumer Group has also expanded its energy drink product portfolio. Pepsi-Cola acquired Rockstar Energy Beverages for US$3.85 billion last year, stably adding a fast-growing brand to its existing energy drinks, including Mountain Dew Kickstart, Game Fuel and AMP.

PAI manages approximately 15 billion euros of private equity funds and will use its 5.1 billion euros seventh fund to acquire the Pepsi-Cola brand.

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