Korean firm Lotte acquires 34.4% stake in local Pepsi unit for P4.4 billion

MANILA, Philippines - Lotte Chilsung Beverage Co. Ltd., a unit of South Korea’s Lotte Group, has acquired a 34.4 percent stake in Pepsi-Cola Products Philippines Inc. (PCPPI) for around P4.4 billion, gaining a foothold in the Philippine market.

Lotte Chilsung, Korea’s leading beverage company, has agreed to pay 118.4 billion won ($102 million) for the purchase of PCPPI shares from Malaysian group Guoco Inc., Hong Way, Nassim Fund of Singapore and PCPPI president Micky Yong. The selling price of P3.50 per share is a 24 percent premium to PCPPI’s closing price yesterday of P2.83.

New York-based PepsiCo. will remain as the other majority shareholder of PCPPI with its 30 percent stake. The group manufactures and markets a wide variety of carbonated and non-carbonated beverages as well as cereal-based snacks and other foods.

The acquisition, however, is not enough to trigger a mandatory tender offer to minority shareholders, falling short of the 35 percent threshold as provided under the Securities Regulation Code.

Hwang Chung, chief executive officer of Lotte Chilsung, said the acquisition is in line with the group’s strategy to aggressively penetrate the Southeast Asian market as it seeks to become one of Asia’s top 10 global business groups by 2018.

Lotte Group is a multinational conglomerate founded in 1948 in Japan and in 1967 in Korea with annual sales of $45 billion in 2009. It consists of over 60 business units employing 60,000 people engaged in various businesses such as food and beverage, retail, travel and tourism, petrochemicals, construction and finance.

Yong said the sale represents a strong vote of confidence for the company and the country as well. “Lotte will bring into the Philippines its expertise and resources to continue the growth momentum of PCPPI in the country’s highly competitive beverage industry which recently has started to expand again due to the country’s improved economic fundamentals,” he said.

Partha Chakrabarti, chief finance officer of PCPPI, said while there will be no drastic changes in the company’s operations and management, the Lotte Group will have four representatives on the board of directors of the local softdrinks firm.

Chung said Lotte Chilsung has been Pepsi Co.’s bottler in Korea for more than 30 years and now accounts for 40 percent of the softdrinks market.

He said Lotte Chilsung is committed to further improving PCPPI’s manufacturing facilities and launching new products such as coffee and mineral water.

Meanwhile, Chakrabarti said PCPPI is putting up two new lines which can produce both carbonated and non-carbonated drinks. For its fiscal year ending June 2010, PCPPI has allotted a little more than the P1.5 billion capital budget for 2009.

With 11 bottling plants across the country, PCPPI produces world-known products such as Pepsi, Seven-Up, Mountain Dew, Mirinda, Mug Root Beer, Gatorade, Tropicana and Lipton as well as Propel, Sting, and Premier bottled water.

Lotte Chilsung said it is optimistic that the P700 million Philippine beverage market, which has grown by 12 percent annually in the past three years, has more room for growth, particularly in the non-carbonated drinks segment.

For its fiscal year ending June this year, PCPPI’s net sales rose 13.3 percent, nearly doubling performance over the last five years, largely due to the increase of its share in non-carbonated beverages from 24 percent to 28 percent.

Lotte is engaged in the production of carbonated soft drinks, juices, coffees, teas, health beverages, soybean drinks, mineral waters and alcoholic drinks under the brand names Milkis, Chilsung Cider, 2%, Let’s Be, Sarang-Cho, Mango, Pomegranate, Plus Minus, Ceylon Tea, Today’s Tea, SacSac, Etc, Cantata and Ryu.

Lotte’s major products include cider, coffee, red tea, Korean whiskey, lemon lime soda, milk soda, refreshing water and sac juice.

Lotte Chilsung is aggressively expanding its operations overseas with plans to open the first Korean hotel chain in in Moscow. It is also beefing up its presence in China before opening hotels in other countries through Asia. Some of its units are also working together to build a large-scale complex in Shenyang, including a hotel and theme park.

The South Korean conglomerate is also strengthening its position in existing industries such as department stores and supermarkets, hypermarkets, convenience stores, multiplex theaters. Plans are underway to set up department stores in Russia, China, Vietnam and Indonesia.