A very active year-end!

Another interesting event was Pepsi Co’s bid for Wimm-Bill-Dann. The bid of USD 3.8 billion for 66% of the shares is a significant signal from one of America’s “classic” multinationals that Russia is a market that cannot be ignored. If we add that Pepsi is also planning to bid for the outstanding minority shares as soon as approval is granted, we reach the considerable amount of USD 5.4 billion. This is a large investment money and if we also consider that Pepsi already has a large operation in the country, it is apparent that our optimistic view on Russia, and the fast growing consumption within the extensive middle class, is shared by Pepsi.

Russia will now be the single largest foreign market for Pepsi (previously Mexico), and by a wide margin compared to the other BRIC countries. Pepsi will also reach a combined market share of over 50% in the juice sector, as it is already a significant player in this market. It is also interesting to note that Coca-Cola holds the number two position on the Russian juice market with approximately 35% market share.

Both of these companies have realised that the Russian consumer consumes much more than consumers in many other emerging markets. This is explained by the fact that the Russians have a comparatively higher income per capita and therefore private consumption has really taken off.

Wimm-Bill-Dann is an interesting part of Russian industrial history. The name is a transcription of Wimbledon; they simply looked for a name that sounded international. This was important for success when the company was established in 1992. Following the Russian crisis in 1998, focus in the market shifted to Russian names and Wimm-Bill-Dann started a number of Russian brands, which demonstrated a good ability to understand the Russian consumer. The stock was listed on the New York Stock Exchange in 2002, long before the listing in Moscow, and has since been one of the important holdings in East Capital’s Russian portfolio; completely in line with our strategy to look for exposure to domestic consumption. We will certainly miss this stock but we also see a continuous flow of new Russian companies focused on local consumption to the stock exchange.

Peter Elam Håkansson
Written on flight LH 452 (Lufthansa) between Munich and Los Angeles