The $542 million purchase price for a 80 percent stake marked the acquisition as one of the largest merger and acquisition deals in Ukraine’s history
PepsiAmericas, Inc., the world’s second largest manufacturer, seller and distributor of PepsiCo beverages, and PepsiCo itself, announced a landmark agreement on June 7 to jointly acquire 80 percent of Sandora LLC, Ukraine’s number one juice maker.
The $542 million purchase price for a 80 percent stake plus assumed debt marked the acquisition as one of the largest merger and acquisition deals in Ukraine’s history in terms of sale price. The acquisition, which envisions both companies acquiring an additional 20 percent stake in Sandora by November, also sets the stage for increased competition on the Ukrainian market between beverage giants Pepsico and Coca-Cola. In securing the acquisition of Sandora, the Pepsi duo outbid Coca-Cola, which has had a stronger position on the Ukrainian market in cola sales, but hoped to beef up its presence on the juice market.
The sale is subject to approval by Ukraine’s Anti-Monopoly Committee. Nevertheless, Pepsi officials are already expressing their satisfaction in securing a stronger position on the promising Ukrainian market, where disposable incomes have been growing by double-digit figures in recent years.
“We are excited to extend our strong partnership with PepsiCo to create a new model for beverage growth in Ukraine,” said Robert C. Pohlad, Chairman and CEO of PepsiAmericas, in a statement.
PepsiAmericas and PepsiCo said both companies would create a joint venture to acquire 80 percent of Sandora. PepsiAmericas, also based in the US, will own a 60 percent interest in the venture.
The acquisition will provide both companies “a strong platform for growth in the emerging Ukrainian market.” PepsiAmericas will manage daily operations of the venture. PepsiCo will oversee brand development.
Dick Detwiler, company spokesman for PepsiCo International, told the Post in a telephone interview that the main reason for Pepsi’s purchase of the Ukrainian company was because “Sandora is an interesting business.”
“PepsiCo has a great beverage brands portfolio. Sandora is a wonderful addition to it that offers great opportunities for growth,” he added.
PepsiCo’s Ukraine office declined to comment.
Sandora LLC was founded in 1995 with the startup capital of two Lithuanian nationals: Igor Bezzub and Raimondas Tumenas. Sources said the company’s minor shareholder, Ukrainian citizen Sergey Sypko, approached both Lithuanians with a business plan envisioning Ukraine’s first major juice producer. They agreed and offered the first investment cash needed to build up this domestic juice giant. Today, Bezzub and Tumenas each own 45 percent stakes in the company. Sypko holds 10 percent.
Ihor Landa, executive director of Sandora LLC, said the main factor that influenced the final decision to sell the company was the sale price.
It remains unclear how much debt the new owners agreed to pick up, as the complete sales contract offer was not disclosed.
“The owners of the company had always been receiving offers to sell Sandora, but at the end of last year they decided to evaluate it and, if the price seemed appropriate, to sell it. The amount was rather reasonable and [eventually] the company was sold,” Landa added.
While the purchase price is considered high by Ukrainian terms, it was affordable for PepsiCo and PepsiAmericas. PepsiCo alone generated annual revenues of more than $35 billion in 2006.
Landmark acquisition
In addition to outbidding Coca-Cola, the Pepsi duo also beat out a leading US equity company, Advent International, Mid Europa Partners, a private investment firm focused on Central and Eastern Europe, and Lebedyanskiy, a large Russian juice maker.
Competition for a share of Ukraine’s fast-paced juice market has been high of late. On May 16 the Post reported that Advent International backed out of a deal to buy another Ukrainian beverage maker, Rosynka, for tens of millions of dollars. A Polish company now has a chance as the next in line, sources said.
While leading Western food and beverage players have tiptoed onto the market in the past, building up operations from scratch, the Sandora sale ranks as the largest M&A deal in Ukraine’s food and beverage sector. It is also one of the largest M&A deals in Ukraine’s history, following the $4.8 billion dollar acquisition of the steel mill Kryvorizhstal by Mittal Steel in 2005, and a flurry of banking acquisitions by European financial groups, where sale prices have exceeded $1 billion.
The sale agreement was signed amidst Ukraine’s escalating political crisis, which seemed to be leaning toward a violent scenario until a surprise compromise deal was reached. The sale signals that the appetite for Ukrainian assets remains strong despite the lasting political turmoil. Investors have been taking a long-term approach, tuning out the current political infighting and recognizing that the country’s long-term future is bright.
The market
Sandora is Ukraine’s leading juice maker, enjoying a strong market share of about 47 percent in 2006, according to Valeriya Trifonova, head of Sandora’s public relations department.
The company’s production capacities include a facility for processing and producing juice products and a production facility in Mykolayiv Region, as well as two season plants for processing vegetables and fruit in Kherson Region and Crimea. The company’s projected total production volume stands at around 1 billion juice packages and juice products a year. More than 3,500 employees work at Sandora.
The company’s portfolio of juice brands includes seven trademarks, including Sandora, the flagship brand, with several brand extensions, and the Sandorik and Dar brands. The company also produces and markets Sanday Ice Tea and two wine brands, Svyatkova Kolektsiya and Zolota Olviya.
Sandora sells the lion’s share of its products on the Ukrainian market. Exports account for about 25 percent of its total production volume, and 48 percent of Ukraine’s juice exports, according to the company. Sandora’s exports extend to 24 countries, including CIS countries like Belarus, Russia, Moldova, Lithuania, Estonia, among others, as well as the US, Germany, Sweden, Israel, Poland and Canada.
According to market research company GfK Ukraine, the company’s three juice brands are in the top 10 of the most purchased brands in Ukraine. Some 47.6 percent of Ukrainian consumers buy Sandora’s Sadochok brand juices, 24 percent Sandora Gold, and 8 percent the Dar brand.
The Ukrainian juice and nectar market saw 16 percent year-on-year growth in 2006 while the market of juice-containing beverages increased by 35 percent in the same period, said Marina Zabarilo, head of ConsumerScan, a household panel conducted by GfK Ukraine. Home to some 46 million consumers, Ukraine is considered to be one of the fastest growing beverage markets in Europe.
Sandora’s main competitors include Erlan Ltd. (the Biola and Frutkova Simeyka brands), Vitmark-Ukraina Odessa (Sokovyta, Jaffa, Gabi, Soletto, Belyi sik) and Nidan-Ekofrukt (BKZ, Moya Sem’ya, Jungle Way). Sandora and these rivals occupy more than 80 percent of the Ukrainian juice market, according to GfK Ukraine.
Sandora has strengthened its position in recent years by streamlining operations, and improving distribution and product quality.
