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For those of you who have read my blog, you know that I am generally skeptical of of acquisitions (see Great Shareholder Ripoff and Why M&A Deals Go Bad), and even more so when it comes to foreign acquisitions in developing markets like Russia (see Doing Business in a Developing Country or Russia and the BRICs).

Given that background, you probably might have guessed that my initial reaction to Pepsi’s recently announced acquisition of Wimm-Bill-Dann (NYSE:WBD) would have been that it was a terrible idea (see Pepsi’s Russian Challenge). However, if you thought that about this acquisition, you’d have been mistaken…

Pepsico’s special relationship with Russia began in 1959. Richard Nixon was showing Nikita Khrushchev around the American National Exhibition in Moscow. He made him stop at a kiosk hawking Pepsi-Cola. A young executive named Donald Kendall thrust a cup of dark fizz into the Soviet leader’s hands…

Half a century later, Mr Kendall, who later became Pepsi’s chief executive, flew back to Moscow with Indra Nooyi, who has the job today, to receive Vladimir Putin’s blessing for Pepsi’s takeover of Wimm-Bill-Dann, Russia’s biggest food company. They won the Russian president over by talking about the billions of dollars Pepsi has invested in Russia. It was the first American consumer-goods maker to enter the Russian market, 15 years after Khrushchev first sipped its wares. On December 2nd Pepsi announced that it would buy 66% of Wimm-Bill-Dann for $3.8 billion and launch a mandatory tender offer for the rest of the company.

Just to prove that I don’t think all acquisitions in developing markets are a bad idea, I really do believe that this one stands a chance.

Provided that Pepsi did not overpay for Wimm-Bill-Dann, Pepsico should be able to profitably leverage its 30+ years of operational experience in Russia, along with its strong global distribution network to increase Wimm-Bill-Dann’s sales. In addition, it should be able to derive value from Wimm-Bill-Dann by combining it with Nidan (its previous acquisition in Russia) to capitalize on the fast-growing Russian alternative/nutritional beverage market.

My call then: Better than 50/50 odds of success.

Disclosure: No positions

Source: Pepsistroika