Glenboden M & A Originations

Reasons why Coke's serious about buying Nidan in Russian juices

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Origination Status acquisition rumours, January 2010
Asset Nidan Juices JSC (Russia), no.4 domestic fruit juice producer
Buyer candidates include Coca-Cola and Wimm-Bill-Dann
Seller Lion Capital (UK), private equity firm focused on consumer products, plus Nidan founders
Buyer Rationale protecting no.2 position in Russian market (Coke), new domestic geographies and brands (Wimm-Bill-Dann)
Seller Rationale early exit, defensive timing
NBs Coca-Cola is rumoured to be in talks with Lion Capital to acquire Nidan 'this year'
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When we first addressed this origination, a year ago, we believed that Lion Capital would be under pressure to sell Nidan early due to competitive pressures, and that Eckes -Granini is the most likely buyer. Eckes however then withdrew from the Russian market. So we ask whether Coca-Cola is interested mainly for defensive reasons, in the face of rival interest from an ascendant Wimm-Bill-Dann.

Pressures to make an early exit from Russia ...Lion Capital invested in Nidan only two years ago, so in theory it’s too early to seek an exit. However, it seems that consolidation forces are very strong in Russia, with both Coca-Cola and Pepsico committing huge sums to dominating its juice market.

In addition, that market’s growth rate is slower now, increasing those competitive pressures.

So the risk for Lion Capital is that, in a few years’ time, Nidan will be a falling knife which only bargain –seeking investors will want to buy.

.... with both Pepsico and Coke as major competitorsCoca-Cola made the first big M&A move, by acquiring Multon, Russia’s no.2 juice producer with about 23% market share, in 2005 (see chart, source: Business Analitika)

Subsequently, Lion Capital made its investment in Nidan, Russia’s no.4 player, with about 14% national share and dominance in Siberia.

But then Pepsico trumped both Coke, and in particular Nidan, by acquiring the no.1 player in Russia with about 33% share, Lebedyansky, in 2008.

Lion Capital’s M&A options for Nidan are limitedBoth Pepsico and Coke paid a lot of money to take the top two spots in the Russian juice market. Pepsico paid nearly US$ 1,5 bln, equivalent to x2,5 Sales, to gain control of Lebedyansky; three years earlier Coke had paid about US$ 500 mln, equivalent to x1,5 Sales, for Multon.

To get a decent return on their investment, the priority for these two majors will be big corporate stuff - rationalising the brand portfolios, focus on mainstream juice categories, supply chain optimisation etc.

... with Coke surely having other priorities ...With this major investment project, in a falling market in US$ terms, one might ask why would Coke seriously contemplate buying Nidan at this time also ?

Especially when it's not a group that likes to collect brand portfolios, and especially when the threat from Eckes acquiring it has disappeared.

.... but possibly having hand forced by WBDOne option is for Nidan to merge with Wimm-Bill-Dann’s juice business. However, Lion Capital is likely to avoid such a relatively complex and risky option, unless it's a full sale of Nidan to Wimm-Bill-Dann.

But that's a possibility in financial terms, with WBD posting strong growth in its EBITDA margin and a net debt ratio of less than x1,5 in Q3 2009.

Another factor possibly supporting such an outcome is that Danone is a strategic minority investor in WBD.

... who would overtake Coke if it buys Nidan....It could be that this is Coca-Cola's fear; that a bigger national champion will emerge and challenge the group in price terms. That combination would have a market share of about 33%, placing it neck-and-neck with Pepsico and putting Coke into a relatively weak third place.

.... creating a national championA process similar to that has emerged e.g. in Poland, where the two big domestic players, Tymbark and Agros Nova, grew by acquisition and now dominate the market.

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THIS LEAD'S VALUATION
Size (€ mln) 350
Sector fruit juice
Asset Quality Russia no.4 branded
Seller private equity
Buyer large plc
P/S 1,5
P/Ebitda n/a
Type value estimate
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