PepsiCo (NYSE:PEP) made two major deals in the month of November. Firstly, it swapped its bottling operations in China for a stake in Tingyi Holding Corp’s beverage business in order to compete against Coca Cola Co (NYSE:KO).  The second deal involved acquiring privately held Grupo Mabel, the second-largest maker of cookies in Latin America. Both the moves are seen as a bid to increase the presence of the company in the respective regions. 
PepsiCo’s bottling business in China has been making losses for the past two years amid rising cost of raw materials and intense competition from Coca Cola Co.  Pepsi’s market share in the Chinese soft drink market is a mere 5.5%, less than one third of Coca Cola’s market share, which stands at 17%.
After the deal, Tingyi would work with current PepsiCo’s current bottlers to manufacture and distribute PepsiCo’s drinks while PepsiCo would keep responsibility for branding and marketing.
The deal should maximize PepsiCo’s future growth potential in the fastest growing beverage market in the world. The company also said it planned to invest $2.5 billion in China over the next 3 years and aims to open 10-12 plants to manufacture soft drinks, non-carbonated beverages and snacks and also plans to increase capacity at existing plants.
Latin America Expansions
Meanwhile the company has also agreed terms to acquire Grupo Mabel, the second largest maker of cookies in Latin America, in a deal reported to be in the region of $520 million. The biscuits form the largest segment in the snacks category in Brazil, present in more than 98% households. Brazil is also the second largest cookie and cracker producer in the world. Mabel’s brands include Mabel, Elbi’s, Kelly and Skiny, which should complement PepsiCo’s existing food and beverage portfolio. PepsiCo’s current portfolio includes Elma Chips, Quaker, Toddy Chocolate Powder and Toddynho Chocolate Milk.
PepsiCo’s acquisition of Grupo Mabel should help drive business performance and help unlock long term growth opportunities. We believe that Frito Lay, within PepsiCo, represents about 45 % of the stock, so if the move turns out to be successful, it should have a significant impact on the stock price. Furthermore, the deal adds diversity to PepsiCo’s portfolio, thereby reducing the chances of cannibalization.
Domestic presence to be beefed up by Papa John’s
PepsiCo recently won a contract to be the exclusive drink at Papa John’s 3,000 outlets in the U.S., ending Papa John’s 25 year relationship with Coca Cola. One of the major reasons for the switch was the appeal of Pepsi drinks, such as Mountain Dew, to young adult males, who constitute a major chunk of Papa John’s customer base. PepsiCo will also introduce Aquafina, its bottled water brand to the Papa John’s menu.Notes: