Pepsi is to sell Tropicana, Naked and other juice brands to French private equity firm PAI Partners for about $3.3 billion as it seeks to bolster its balance sheet and focus on healthier snacks and zero-calorie drinks.
The US drinks company will retain a 39 per cent non-controlling interest in a new holding company for the brands and has also granted PAI an irrevocable option to buy certain juice businesses in Europe, it said on Tuesday.
Pepsi said it plans to use the proceeds from the deal to strengthen its balance sheet and invest in the wider business.
Paris-based PAI is an experienced investor in the food and beverage space and is behind Refresco, the biggest independent bottler of beverages globally. PAI’s proposed joint venture with Pepsi is similar to one it created when it merged its R&R ice cream business with large parts of Nestle’s ice cream division to create Froneri.
“This joint venture with PAI enables us to realise significant upfront value while providing the focus and resources necessary to drive additional long-term growth for these beloved brands,” said Ramon Laguarta, Pepsi's chairman and chief executive.
“In addition, it will free us to concentrate on our current portfolio of diverse offerings, including growing our portfolio of healthier snacks, zero-calorie beverages, and products like SodaStream which are focused on being better for people and the planet,” he said.
The Pepsi juice businesses delivered about $3bn in net revenue in 2020. Chief financial officer Hugh Johnston said in an interview that the margins for the business are lower than Pepsi’s average and so the deal will “incrementally benefit margins".
“The juice category has obviously had some challenges over the past 10 or so years, and recently as the business gained a little bit of momentum and we started to think about where we wanted to prioritise our efforts, we made a decision that it might make sense for someone else to run Tropicana,” said Mr Johnston.
The deal allows Pepsi to focus its efforts elsewhere in its portfolio while still enjoying some of the juice division’s revenue. The company will also continue in a distribution role, Mr Johnston said, with the joint venture selling products to Pepsi, which will distribute to smaller shops and restaurants along with other venues.
Pepsi shares were up 0.4 per cent to $157 in light premarket trading on Tuesday in New York. The stock was up 5.4 per cent this year through Monday, compared with 17 per cent for the S&P 500 index.
Centerview Partners is financial adviser to Pepsi, while JP Morgan Chase is advising PAI. The transaction is expected to close in late 2021 or early 2022.