Fear of obesity fuels $ 3.3 billion Pepsi juice deal
LONDON, Aug. 3 (Reuters Breakingviews) – PepsiCo (PEP.O) had it with 100% sunshine. The $ 216 billion maker of Lay’s Cheddar Jalapeno chips and Mtn Dew Cake-Smash soda is leaving Tropicana juices and Naked smoothies across North America for $ 3.3 billion in cash. Strange as it sounds for a company focused on “healthier snacks”, fatphobia is the primary consideration, and a French buyout firm PAI Partners has capitalized.
Managing Director Ramon Laguarta wants to use the money to invest and strengthen his balance sheet. But he keeps his finger in the bottle by keeping 39% in a new joint venture with PAI. This is a bit like what Nestlé (NESN.S) did in 2019 by selling its ice cream branch in the United States to the French group. Laguarta has also agreed to forward certain juice companies in Europe to PAI.
The move allows Pepsi to focus on calorie-free drinks, which in theory don’t lead to obesity, and products like SodaStream, which produce less plastic waste. This echoes Nestlé’s efforts to become a health and wellness conglomerate despite its waist-fat candy products.
The deal values brands, including European ones, at around $ 4.5 billion in debt, or roughly 1.5 times 2020 sales. That’s a significant discount for Pepsi itself, which is trading at more. 3.5 times sales in 2020. Beverage and snack companies, according to Refinitiv, are trading nearly 4 times late sales.
Part of it comes down to profitability. Draining the juices means Pepsi no longer needs to worry about fruits and vegetables. Pepsi Max and Gatorade sports drink bottles do not need to be refrigerated. The sold company had an operating margin below Pepsi’s 14.3% in 2020. This also reduces Pepsi’s exposure to food price inflation.
Beyond these practicalities, Pepsi is also paying close attention to the lens of obesity in America, where nearly half of adults are expected to be overweight by 2030, the Harvard TH Chan School of Public Health predicted. . Obesity being a major risk factor for complications from Covid-19, the potential for public health campaigns against sugary drinks, consumption taxes, shareholder challenges related to ESG and consumer lawsuits has only increased.
Considering that it’s not possible to take the calories out of fruit sugar, it’s no wonder that Laguarta is willing to take Naked Green Machines – with 270 calories and 53 grams of sugar – off the shelf.
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– PepsiCo announced on August 3 that it has agreed to sell Tropicana, Naked and other juice brands across North America to private equity firm PAI Partners, resulting in pre-tax cash proceeds of ‘approximately $ 3.3 billion. She will retain a non-controlling 39% stake in a newly formed joint venture with PAI, the beverage company said. Pepsi has also agreed to an irrevocable option to sell certain juice companies in Europe.
– These companies generated net sales of approximately $ 3 billion in 2020 with operating profit margins lower than Pepsi’s overall operating margin in 2020. PepsiCo expects to use the proceeds from the sale to strengthen its balance sheet and make organic investments.
Editing by Rob Cox and Karen Kwok
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