PepsiCo Ties Up With Suntory In Thailand
PepsiCo (NYSE:PEP) has tied up with Suntory Beverage & Food (SBF) to set up a joint soft drink venture in Thailand, that will help the two companies expand their operations in the country. The latter will pay $289 million to acquire a 51% stake in International Refreshment, which is owned by the cola giant. The two companies have an established record of working together successfully in other beverage markets, including the United States, Japan, New Zealand, and Vietnam. Based on the assumption that the relevant authorities will grant permission to the acquisition, the venture is expected to be set up in March 2018. Suntory had a joint venture with Thai food giant Tipco Foods, known for its fruit juices; but this tie-up was wound up earlier this year due to stagnant sales.
We have a $123 price estimate for PepsiCo, which is over 10% higher than the current market price.
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A Mutually Beneficial Deal
Japan-based Suntory does not have much opportunity for growth in its home country as a result of a declining population. In this regard, it is focusing on other Asian markets, and its venture with PepsiCo is rooted in this strategy. Furthermore, Thailand is one of the largest beverage markets in Southeast Asia, and this improvement is set to continue in the future as well, backed by its population and GDP growth.
The soft drink market in Thailand is an over $7 billion industry. While Coca-Cola holds the top position in the market, with a 20% market share, PepsiCo commands about 10% of the market, and hence, already has a solid business platform in the country, with a strong brand equity, manufacturing facilities, and an established sales network. While for Suntory, the acquisition will enable it to expand its beverage business in the region, for PepsiCo, it will further strengthen its status in the growing soft drink market of Thailand. The two companies will be able to leverage each other’s respective strengths- “SBF’s expertise in the development of products to meet healthier demands, including ready-to-drink tea, and PepsiCo’s strong business platform.”
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