Lotte to Buy 34.4% Stake in Pepsi Philippines, Become Largest Investor

Lotte Chilsung Beverage Co., a unit of South Korea’s Lotte Group, agreed to acquire 34.4 percent of Pepsi-Cola Products Philippines Inc., becoming the biggest shareholder.

Seoul-based Lotte Chilsung agreed to pay 4.447 billion pesos ($101 million) to buy 1.27 billion shares from Guoco Inc., Hong Way and other shareholders, the company said in an e-mailed statement today. The per-share purchase price is about 3.5 pesos, 24 percent higher than yesterday’s closing price.

Lotte Chilsung hasn’t decided whether to buy more shares in Pepsi-Cola Products, Kim In Ho, a director at Lotte Group, said at a briefing in Manila today. PepsiCo Inc., with a stake of about 30 percent, remains the other major shareholder in the Philippine company, Lotte said.

Lotte and its units are expanding in China, India, Vietnam, Indonesia and Russia, seeking to tap faster growth and rising affluence in developing markets. Lotte Chilsung has been a Pepsi bottler in Korea for more than 30 years and has a 40 percent share of the domestic soft drink market, the company said.

“The purchase is in line with the South Korean company’s plan to expand overseas amid stalled growth in its domestic market,” said Kim Yun Oh, a Seoul-based analyst at Shinyoung Securities Co. “The investment may mark closer ties with Pepsi as a partner.”

Beverage Market

Lotte Chilsung rose 0.4 percent to close at 759,000 won in Seoul trading, while the benchmark Kospi stock index declined 0.7 percent. Pepsi-Cola Products voluntarily suspended trading in Manila today. The company’s shares have gained 21 percent this year, underperforming the 31 percent advance by the Philippines’ main stock index.

The Philippine company has 11 plants bottling Pepsi, Mountain Dew, Gatorade and Lipton beverages, it said in today’s statement.

The Philippines’ beverage market, which has posted annual growth of 12 percent during the past three years, is expected to continue its expansion, Lotte Chilsung said.

Pepsi-Cola Products may face “some pressure on profitability” for as long as two years because of depreciation costs, Nam Kuen Lee, a Lotte Chilsung executive director, said in a briefing. Pepsi-Cola Products had net income of 799.7 million pesos on sales of 14.2 billion pesos in the year ended June 2009.

Other expansions by Lotte include its Lotte Shopping Co. unit opening its first overseas department store in Moscow in 2007, before its Beijing outlet. Lotte Confectionary Co. owns 39 percent of Vietnam’s Bien Hoa Confectionery Joint-Stock Co., the candy maker that’s also known as Bibica, according to data compiled by Bloomberg.

Lotte Shopping, South Korea’s biggest department-store owner, in May acquired supermarket operator Times Ltd. for HK$4.87 billion ($627 million), boosting the number of its China outlets sevenfold. Honam Petrochemical Corp., another unit of Lotte Group, said in July it would acquire Malaysia’s Titan Chemicals Corp. in an all-cash deal valued at $1.25 billion.

To contact the reporter on this story: Francisco Alcuaz Jr. in Manila at falcuaz@bloomberg.net; Saeromi Shin in Seoul at sshin15@bloomberg.net

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