PepsiCo Taps Cold War Hero to Seal Latest Takeover

PepsiCo CEO Taps Cold War Hero
Indra Nooyi, chairman and chief executive officer of PepsiCo Inc. Photographer: Joshua Roberts

Don Kendall made a name for himself by giving Soviet leader Nikita Khrushchev his first taste of Pepsi. The 89-year-old former PepsiCo Inc. chief executive officer can also take some credit for the company’s latest move in Russia -- the takeover of Wimm-Bill-Dann Dairy & Juice Co.

Kendall joined current CEO Indra Nooyi in Russia this week to help secure Prime Minister Vladimir Putin’s blessing for the deal. Nooyi said in an interview today that Kendall immediately agreed to fly to Russia when she called him on Nov. 28 to come to the meeting.

“He is Mr. Pepsi,” Nooyi said. “He just said, ‘When do you want me to hop on the plane, and tell me what it’s for, and I’m ready to go.’”

The $3.8 billion purchase of the majority stake in Wimm-Bill-Dann makes PepsiCo Russia’s biggest food and beverage company. Putin’s approval means PepsiCo is now poised to wrest back the lead in Russia’s juice and dairy market from Coca-Cola Co. as both companies make acquisitions in the region. PepsiCo, based in Purchase, New York, entered the Russian market 15 years after Khrushchev’s first sip of Pepsi in 1959.

Nooyi and Kendall talked with Putin, 58, about the billions PepsiCo had invested in Russia and how it could use Wimm-Bill-Dann as a springboard to expand in the region, said people with knowledge of the talks. The executives also discussed how the takeover was evidence that the nation is open to Western investment, according to the people, who declined to be identified because the meeting was private.

Russian Pepsi

“It’s serves a wonderful role in helping us kick-start our dairy business,” Nooyi said. PepsiCo plans to integrate dairy products into snacks and drinks, not just sell packaged milk. “This is a very, very important strategic move.”

PepsiCo had considered buying Wimm-Bill-Dann for years and was able to pursue a deal after Danone SA agreed to sell its 18 percent stake in Wimm-Bill-Dann in August, two people said. Danone divested the holding to address antitrust concerns in Russia after buying another dairy company in the country.

Talks fired up with a chance meeting in September between PepsiCo and Wimm-Bill-Dann executives at an industry conference in Europe, said the person. Soon, the companies were in exclusive negotiations.

By October, Wimm-Bill-Dann became concerned word of the discussions with Nooyi would be leaked and anger the Russian government, which doesn’t like to learn of foreign investment through media reports, according to the people. PepsiCo was concerned that Coca-Cola and others might bid, the people said. The companies agreed to reach a deal by next week or end talks.

Putin Meeting

As the two sides worked out details, they were concerned about the reaction of Russian government leaders, who could scuttle the transaction, two people said. That’s when Nooyi called in Kendall, who still spends several days a week in his office at PepsiCo headquarters. The meeting with Putin lasted about 45 minutes to an hour, another person said.

Kendall was Pepsi-Cola’s head of international operations when he participated in the 1959 American National Exhibition in Moscow. It was there that Kendall offered Khrushchev cups of Pepsi-Cola made in the U.S. and Moscow. The tasting came moments after Khrushchev’s and President Richard Nixon’s now-famous Kitchen Debate at the exhibition.

In 2004, Russia awarded Kendall its Order of Friendship medal. Putin presented the medal to Kendall on a later trip to the country. An internal PepsiCo memo at the time called Kendall the “architect of our international beverage business.”

Nooyi, 55, has a relationship with Putin as well through her seat on Russia’s Foreign Investment Advisory Council. This year’s council, chaired by Putin, also includes CEOs from BP Plc, Cargill Inc., Deutsche Bank AG and Ford Motor Co.

Remaining Stake

PepsiCo will buy 66 percent of Wimm-Bill-Dann and plans to make an offer for the rest subject to government approvals, with a deal for the entire company likely to be locked in by the end of the second quarter, PepsiCo Chief Financial Officer Hugh Johnston said yesterday. The agreement doesn’t have a go-shop provision or other mechanisms that would allow an outsider to come in and bid, said the people.

The deal is PepsiCo’s largest yet to bolster its Russian beverage business, following the 2008 purchase of a majority stake in OAO Lebedyansky, the country’s biggest juice maker. The move also makes Russia PepsiCo’s biggest international market.

Including assumed debt, PepsiCo is paying 19.8 times trailing 12-month earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. The median multiple for similar deals since 2001 is 9.66 times Ebitda, the data show.

Based on projected 2010 Ebitda, the multiple is 16.4 times, according to PepsiCo.

Wimm-Bill-Dann, whose brands include Chudo dairy products and Agusha baby food, has almost doubled its sales since 2005. In 2009, PepsiCo and Wimm-Bill-Dann together had 42 percent of Russian juice sales by volume, according to data from Euromonitor Plc. Coca-Cola Hellenic Bottling Co. and Nidan held a 35 percent share. Coca-Cola purchased a controlling stake in Nidan this year.

Centerview Partners and Morgan Stanley served as financial advisers for PepsiCo, and Davis Polk & Wardwell LLP and Linklaters CIS provided legal counsel. J.P. Morgan provided financial advice for Wimm-Bill-Dann, and Latham & Watkins LLP acted as legal adviser.


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