Pepsi Squeezes Coke With Tropicana Deal
PepsiCo Inc. agreed Monday to buy Seagram Co.’s Tropicana, the nation’s largest juice company, for $3.3 billion in cash, opening another front in the No. 2 soda maker’s battle with Coca-Cola Co.
Seagram scrapped its plan to sell Tropicana shares to the public, which some investors said was unlikely to reach its $3.15-billion goal. Selling to Pepsi is a surer route to raising funds to pay for Seagram’s $10.4-billion purchase of PolyGram, the world’s largest music company.
PepsiCo Chief Executive Roger Enrico has retooled the company in the last two years by spinning off the Pizza Hut, KFC and Taco Bell restaurants and building up the Frito-Lay snack business. Now he’s adding a well-known brand that leads the $16 billion-a-year U.S. juice industry to go head-to-head with Coca-Cola’s Minute Maid, the No. 2 juice maker.
“Tropicana has such a dominant position,” said PaineWebber analyst Emanuel Goldman, who rates Pepsi a “buy.” “Tropicana will be more important to Pepsi than Minute Maid is to Coca-Cola.”
On the New York Stock Exchange, Pepsi shares rose 25 cents to close at $39.75. Coke fell $1.56 to $84.56 and Seagram rose 13 cents to close at $39.94.
Enrico said Purchase, N.Y.-based Pepsi would expand Tropicana overseas and develop products using its brand names.
Montreal-based Seagram, which bought Tropicana from Beatrice Cos. in 1988 for $1.2 billion, dropped the initial public offering because the acquisition provides a set price as the market for IPOs falters, investors said.
“Seagram would have never raised that kind of money in an IPO,” said portfolio manager Philip Foreman at Composite Research & Management, which had 279,000 Pepsi shares and 425,000 Seagram shares in March. “It’s a good deal for both companies.”
Brandenton, Fla.-based Tropicana Products Inc. had more than $1.9 billion in sales last year, while Pepsi had $20.9 billion.
Tropicana’s brands include some ofthe best-known trademarks in the juice business, including Dole. Tropicana Pure Premium is the fifth-largest brand of all food products sold in grocery stores in the U.S.
Coca-Cola, which has owned Minute Maid since 1960, has struggled with its juice division.
“Minute Maid has a strategy in place and is focusing on building value for that brand,” said Coca-Cola spokesman Mark Preisinger. “We’re not worried about who our competitor is.”
Enrico said he wrapped up the purchase in a telephone call Saturday night with Seagram CEO Edgar Bronfman Jr.
“It came about when I saw they were doing the PolyGram deal, so I called Edgar and said if they were going to do anything, I’d like to have a look,” said Enrico in an interview.
Bronfman initially put Tropicana’s value at $3.5 billion to $4 billion. Its IPO would have been the largest ever in the U.S. Tropicana also would have repaid $600 million in debt to Seagram.
Last week, Seagram filed with the SEC to sell as many as 136.95 million shares of Tropicana at $21 to $23. At $23, the proceeds would have been $3.15 billion, or 12% less than the $3.57 billion the company estimated in a filing last month.
