Pepsico Buys 2 British Snack Food Producers
Pepsico Inc. snapped up two of Britain’s largest potato chip manufacturers from BSN of France on Monday in a $1.35-billion cash deal that gives the food and beverage giant a larger share of the European snack food market.
BSN had acquired the companies, Walkers Crisps and Smiths Crisps, just a month ago as part of its purchase of RJR Nabisco’s European food operations. RJR sold the division to trim some of the debt from its record $25-billion buyout by Kohlberg Kravis Roberts & Co. earlier this year.
The latest sale makes Pepsico one of the largest snack food producers in Europe as the Continent moves toward eliminating trade barriers by 1992. It also allows BSN to focus on its core biscuit and pastry businesses, industry analysts said.
“We view the acquisitions of Walkers and Smiths as strategically important, as (they) will transform the Frito-Lay division of Pepsico into a worldwide snack food manufacturer,” said Lawrence Adelman, of Dean Witter Reynolds Inc.
Joanna Scharf of Drexel Burnham Lambert Inc. agreed. “They’re investing in a business that they know very well,” she said. “No one else can do in this business what they can do.”
Wall Street wasn’t as enthusiastic, however. In composite trading Monday on the New York Stock Exchange, Pepsico closed down 12.5 cents to $53.125 a share.
Walkers and Smiths are among Britain’s largest sellers of potato chips and snack foods, with sales estimated at $460 million this year. The United Kingdom is the world’s second-largest market for snack food behind the United States, although per-capita consumption is only two-thirds of the U.S. rate.
“For Pepsico, this acquisition represents a one-time opportunity to significantly strengthen and expand our international snack food business,” Pepsico Chairman D. Wayne Calloway said.
“Smiths and Walkers have a leadership position in the United Kingdom similar to that of Frito-Lay in the United States.”
Pepsico, based in Purchase, N.Y., is one of the world’s largest consumer products companies with sales of $13 billion last year, 37% of which came from snack foods.
Among its well-known businesses are Pepsi-Cola Co., Seven-Up International, plus the Pizza Hut, Taco Bell and Kentucky Fried Chicken restaurant chains. Its snack food operations, which hold a 60% market share in the United States, makes Frito-Lay, Doritos and Lays products .
BSN, with 1988 sales totaling $7 billion, produces biscuits, dairy and other grocery products, beer, champagne and mineral water.
The French company had purchased five RJR businesses, including Smiths and Walkers, on June 6 for $2.5 billion. BSN said it planned to keep the other three companies--the United Kingdom biscuit business of Nabisco Brands; the Belin Group, a French biscuit and pastry business, and Saiwa, a biscuit and snack producer in Italy.
Analysts said the Pepsico purchase would dilute 1989 and 1990 earnings per share by about 8 cents each year, but they said that would be offset by the estimated $490-million cash surplus this year.
Adelman said he expects the company to earn between $3.25 and $3.30 per share this year, and around $3.80 a share in 1990. Pepsico earned $762.2 million, or $2.90 a share, in 1988.
“It appears that what they paid for this business is in line with cash flow multiples being paid for good companies,” said George E. Thompson, an analyst with Prudential-Bache Securities Inc.
“I think that when you put Pepsico together with these companies . . . they bought themselves a strong earnings stream over the intermediate and long term.”