PepsiCo (NASDAQ: PEP) revealed Tuesday that it had agreed to sell Tropicana, Naked and other juice brands to French Private equity firm, PAI Partners. The move was made as the company seeks to evaluate its portfolio of beverages and better its profit margins.
“We are focused on capital allocation and ensuring we are always optimizing our portfolio to get the best results. As we went through an exercise over the past 18 months or so, we came to the conclusion that given our orientation towards higher growth and improving our margins, Tropicana was probably less of a fit with the portfolio that it was before. So we made a decision that it probably made sense to move Tropicana elsewhere,” PepsiCo Vice Chairman and CFO Hugh Johnston said in an exclusive interview on Yahoo Finance Live.
As per the agreement, Pepsi will receive USD3.3 Billion from PAI Partners. Furthermore, the beverage manufacturer will be given a 39% stake in the newly joint venture with PAI as well as the exclusive U.S. distribution rights to the juice brands within certain channels, such as food service.
“This joint venture with PAI enables us to realize significant upfront value, whilst providing the focus and resources necessary to drive additional long-term growth for these beloved brands,” Pepsi CEO Ramon Laguarta said in a statement.
According to Johnston, the agreement will help the company boost operating margins within its North American business. Additionally, PAI will be given the permanent option to purchase particular Pepsi juice businesses in Europe.
“In part, the news of Tropicana and Naked reflects the uncertain role of fruit juice in the consumer’s routine long term and the ongoing concern about sugar, particularly in North America where Tropicana is largest,” said Howard Telford, head of soft drinks at Euromonitor International. “While the category in the U.S. enjoyed a boost in off-trade sales in 2020, with consumers seeking more vitamin C for immune support, the long-term trend has been one of decline.”
Pepsi shares have risen 5% throughout the year and has a current market value of USD216 Billion.