VBL may Drink Up PepsiCo’s Bottling Ops
RJ Corp-owned co in talks for south and west units to get nationwide control of these functions
New Delhi: RJ Corp-owned Varun Beverages Ltd (VBL) is in advanced talks to acquire PepsiCo’s bottling, sales and distribution in the south and west for its carbonated drinks business, giving it nationwide control of these functions, said two executives aware of the development. Varun already runs PepsiCo’s bottling operations in the north and east and contributes more than 51% to its India’s sales volume.
In December last year, PepsiCo formed a team under chief human resources officer Suchitra Rajendra to manage the likely transition of employees from company-owned to franchisee-owned operations.
“The divestment of the bottling operations nationally is in line with the company’s global direction to run asset-light businesses across world markets and operate the majority of its bottling operations through franchisee partners,” said one of the persons. “The likely transaction, however, will not be (completed) in the short term since it will involve multiple and complicated transfers of assets and employees.”
Once the divestment takes place, sales RJ Corp’s revenue: Pizza Hut, $1.6 billion-plus KFC, Costa Coffee franchisees Varun Beverages
Listed on BSE in Nov 2016
PepsiCo’s bottling business in north and east in 2014 and distribution will be operated by the franchisee partners. PepsiCo will continue to own the brand name and sell concentrate to franchisees besides handling marketing.
PepsiCo said it wouldn’t comment on “rumours and speculation”. RJ Corp chairman Ravi Jaipuria said the same: “We don’t comment on market speculation.” The $1.6-billion diversified RJ Corp is among the Purchase, New York-based company’s top three bottlers globally.
The maker of Pepsi Cola, Mountain Dew lemon drink, Tropicana juices and Lay’s chips and RJ Corp have been in talks over such a deal for close to two years. ET had reported in October 2017 that PepsiCo was looking to divest its bottling operations in the south and west as well.
Pepsi Cola, Mountain Dew lemon drink, Tropicana juices, Lay’s chips
Plants owned in south & west
It has grounded planes, laid off staff and trimmed unviable flights to stay afloat.
Jet has been coaxing Etihad for a fund injection but the Abu Dhabi-based carrier, like all investors Goyal has approached, has demanded that he give up his majority stake and management control. To be sure, in such a scenario, Etihad will have to rope in a new Indian partner as a foreign airline can’t manage a local carrier, according to current norms. Goyal hasn’t yet agreed to the proposed arrangement, said the people cited above. Talks with the Tata Group for a rescue also seem to have gone nowhere.
Shares are key collateral for airlines, which have a limited number of assets, apart from the planes they own. Of the 120 or so planes in its fleet, Jet owns just 16 and is trying to sell a large chunk of them under a sale-and-leaseback arrangement. Under this, planes are sold at a premium to their original purchase price and leased back through monthly rentals. Jet’s net worth and market cap have eroded due to its run of losses and financial troubles. The share price has declined 70% in the past 12 months and closed at ₹ 253 on Friday, up 4.67% from the day before, on the BSE for a market value of ₹ 2,880 crore. Jet’s net worth at the end of September was a negative ₹ 9,768 crore with accumulated losses at more than ₹ 13,000 crore.
Indian banks, still nursing the wounds of the Vijay Mallya-founded Kingfisher Airlines’ default, are reluctant to throw Jet a lifeline without covering their exposure with adequate collateral. The banks say Mallya, currently fighting extradition in the UK and facing fraud and money- laundering charges, owes them Rs 9,000 crore.
“If things don’t work out, we fear Jet will go the Kingfisher way. We have also asked Etihad that, given its financial position, whether it would be able to chip in with capital,” a senior banker told ET.
Etihad will be cautious with its airline investments, given that those it has made in Europe, such as Air Berlin and Alitalia, have soured and affected its own financial health. The airline posted a loss of $1.52 billion in 2017 compared witha $1.87 billion loss in 2016. The airline hasn’t declared its earnings for 2018 yet but Fitch Ratings has estimated it will be in the red till 2022. Last week, the airline cancelled an order for 10 Airbus A320neo planes for Air Serbia, in which it owns a 49% stake. Etihad has long been rumoured to be merging with bigger, more profitable Dubai-based rival Emirates.
Jet has total debt of over ₹ 8,000 crore and, according to estimates by ICRA, its loan repayments till FY21 total Rs 6,312 crore. The consortium of Indian lenders led by State Bank of India (SBI) has also not yet agreed to a proposal to convert debt to equity in Jet. The lenders have been meeting every week, trying to stitch together a bailout plan for Jet. Goyal has meanwhile met government officials at the highest level, appealing for assistance to save his airline.
Jet had in 2013 raised loans of $300 million from HSBC and a consortium of banks headed by Mashreq. Etihad had backed the loans after it bought about a quarter of Jet for $379 million. However, last September, Mashreq and a few other overseas lenders reportedly sent letters to Jet asking for details of its repayment plan, given the constantly deteriorating financial health of the airline.