Pepsico Sours On Fruit-Juice Drinks
PepsiCo, the world’s second largest food & beverage conglomerate, has sold a majority stake in its Tropicana and Naked brands for $3.3 billion to private equity firm PAI Partners in what is described as a move away from high-sugar fruit juice brands.
Tropicana & Naked were both acquired by Pepsico in the late 90s and late 2000s respectively, broadly reflecting a trend across the sector in response to consumer interest in fruit juice brands and healthy drink options, particularly as an alternative to soft drinks.
Since then both consumers and policy makers have been focusing their attention on the levels of sugar contained in our diets. The UK’s Soft Drinks Industry Levy implemented in 2018 has been lauded as a success in reducing sugar content and sales of soft drinks. Juice and milk-based drinks are, however, currently exempt from the ‘sugar tax’, notwithstanding that roughly 60% of the exempt fruit juices on the market contain so much sugar they almost double the threshold for the tax.
PepsiCo’s rival Coca-Cola has also been divesting itself of its fruit juice brands over the last year, discontinuing its Odwalla brand and selling its stake in Zico, although it is holding onto its Minute Maid and Simply juice brands. Coupled with financial underperformance by some of these brands, PepsiCo’s move is reflective of the industry’s general doubt about the future of fruit juices in light of ongoing consumer concerns over high sugar content.
The legal perspective
It’s important to recognise that the deal is not a complete sale of all of PepsiCo’s interest in the two brands. Instead, PepsiCo is pursuing a joint venture with PAI Partners whilst retaining a 39% stake – an arrangement that offers more room for flexibility, whilst still benefiting from the $3.3 billion price tag and its fair share of profits the brands may make.
PAI Partners have also been granted an irrevocable option to purchase, at a pre-agreed price, certain further juice brands in Europe. This hints that PepsiCo intends to continue unwinding its stake in juice brands further.
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This article was prepared by Meer Gala-Shah.