Pepsico to part ways with Tropicana in a $3.3 billion deal

On Tuesday, Pepsico announced that it will sell Tropicana, Naked, and other North American juice brands to a French private equity firm PAI Partners.

Pepsico intends to boost growth by parting ways with its most famous holdings. The company will receive pretax proceeds of $3.3 billion and retain a 39% stake in the new joint venture and exclusive distribution rights in the U.S. The deal is valued at approximately $4.5 billion, reported Wall Street Journal (WSJ).

Pepsico bought Tropicana for $3.3. billion in 1998 from Seagram Co. At that time Tropicana was the market leader, owning nearly 40% of the chilled orange juice market share in the U.S. and $2 billion in annual sales.

In 2006, Pepsico acquired Naked for $150 million. CEO Ramon Laguarta said that the company was now looking at boosting profits by developing and growing its portfolio of health-focused snacks and zero-calorie beverages.

Fruit juice sales have been under tremendous pressure as consumers are cutting down their sugar consumption. Industry tracker Beverage Marketing Corp. Reported that bottled-water consumption in the U.S. reached 39.3 gallons per capita in 2020, while carbonated soft drinks slipped to 38.5 gallons.

The market tracker also reported that people consumed only 2.8 billion gallons of fruit juices and fruit drinks in 2020 as compared to 3.4 billion in 2011, falling by 19%. This decline led to a 36% fall in PepsiCo’s sales of those products to 436 million gallons. WSJ collated the statistics.

In 2020, Pepsico reported net sales of $70.37 billion, but its juice business generated only $3 billion in revenue, trailing the company’s overall operating margin.

Paris-based PAI owns an equivalent of $17.5 billion in assets. It has been investing in many food and beverage companies in the past few years, such as Nestle’s U.S. ice cream business Häagen-Dazs to a joint venture backed by PAI for $4 billion.

Managing partner, Frédéric Stévenin said that the PE firm intends to boost its growth. “There are a lot of things in this portfolio we can accelerate,” he stated.

Centerview Partners LLC is acting as a financial advisor to PepsiCo. Gibson, Dunn & Crutcher LLP is acting as lead counsel to PepsiCo, and Davis Polk & Wardwell LLP as U.S. tax and antitrust counsel. J.P. Morgan Securities LLC is acting as a financial advisor to PAI. Willkie Farr & Gallagher LLP is serving as legal counsel to PAI, and Latham & Watkins LLP is acting as financing counsel.

(With inputs from Wall Street Journal)

Picture Credits: CNN Business