PepsiCo to sell Tropicana, Naked Juice brands to private-equity firm
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4 min read . Updated: 03 Aug 2021, 06:24 PM IST - PAI Partners to pay $3.3 billion for a controlling stake in juice business
PepsiCo Inc. plans to sell the Tropicana orange juice brand to a private-equity firm, parting ways with one of its most famous holdings in a bid to boost growth.
The snacks-and-beverage giant will sell Tropicana, Naked and other juice brands in North America to private-equity firm PAI Partners, it said Tuesday, confirming an earlier Wall Street Journal report. PepsiCo will receive pretax proceeds of $3.3 billion and retain a 39% stake in the new joint venture in a deal valued at roughly $4.5 billion.
Over the past several years, fruit-juice sales have been under pressure as consumers reduce their sugar consumption. PepsiCo said last year that demand for its orange juice rose during the pandemic, as more people made breakfast at home, but overall juice sales continued to decline at the company and across the industry.
Consumption of fruit juices and fruit drinks fell 19% to 2.8 billion gallons in 2020 from 3.4 billion in 2011, according to Beverage Marketing Corp. Over the same period, PepsiCo’s sales of those products fell 36% to 436 million gallons.
The company and rivals including Coca-Cola Co. have been working for years to shift their beverage sales away from sugary drinks and toward lower-calorie offerings such as diet soda, flavored seltzer and bottled water.
PepsiCo’s juice business had about $3 billion in net revenue last year, compared with about $70 billion for the company as a whole, but profit margins were below those of other divisions. Chief Executive Ramon Laguarta, who assumed the post in 2018, has been under pressure from investors and analysts to improve the company’s margins, particularly in its North America beverage business.
PepsiCo, which gets more revenue from its snacks and food business than from drinks, has been trying to pivot toward faster-growing products. Last year, it agreed to buy Rockstar Energy Beverages for $3.85 billion to expand in the fast-growing energy-drink category.
The company has shifted from a primary focus on margins and returns, Chief Financial Officer Hugh Johnston said in an interview. “Tropicana has been growing pretty well in the past couple years," he said, but it is “slower growth than what we’ve been moving toward."
Tropicana, which PepsiCo agreed to buy from Seagram Co. for $3.3 billion in 1998, remains the top refrigerated orange-juice brand in the U.S., followed by Coca-Cola’s Simply Orange.
Coca-Cola and PepsiCo, which also owns Frito-Lay and Quaker Oats, have expanded their offerings over the past decade in categories such as tea, coffee, sports drinks and protein shakes. Last year, pushed by the pandemic, Coca-Cola discontinued many underperforming brands including its Odwalla juice and smoothie business.
Tropicana was founded in Florida in 1947 by Anthony Rossi, an immigrant who had arrived from Sicily at age 21 with $25 and a few words of English, according to an obituary in what is now known as the Tampa Bay Times. He developed flash pasteurization and pioneered orange juice transport by train from Florida to New York in 1970, according to PepsiCo. Mr. Rossi died in 1993.
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By the time PepsiCo bought the business, it was the market leader, with nearly 40% of the chilled orange juice market in the U.S. and $2 billion in annual sales.
PepsiCo agreed to buy Naked Juice Co. in 2006 in a push to diversify away from its namesake soda.
PepsiCo is to retain exclusive U.S. distribution rights to the juice brands as part of the deal with PAI, which also includes an option to sell certain businesses in Europe.
PepsiCo plans to use the proceeds from the deal to augment its balance sheet and invest in its business.
PAI, with offices in Paris and elsewhere and the equivalent of $17.5 billion in assets, is known for investing in well-known consumer brands.
The firm plans to invest in the latest brands it is acquiring to boost their growth, said Frédéric Stévenin, a managing partner at the firm. “There are a lot of things in this portfolio we can accelerate," he said.
Centerview Partners LLC is advising PepsiCo, while Gibson, Dunn & Crutcher LLP is lead counsel and Davis Polk & Wardwell LLP is U.S. tax and antitrust counsel. J.P. Morgan Securities LLC is advising PAI, while Willkie Farr & Gallagher LLP is legal counsel and Latham & Watkins LLP is financing counsel.
This story has been published from a wire agency feed without modifications to the text
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