PepsiCo puts fizz into healthy drinks with $3.2 billion SodaStream deal

  • 2018-08-02

PepsiCo (PEP.O) will get carbonated drink-equipment maker SodaStream (SODA.TA) (SODA.O) for $3.2 billion since it battles Coca-Cola (KO.N) for an advantage in the health-conscious beverage marketplace.

Founded in Britain in 1903, SodaStream was a coveted device in British kitchens in the 1970s and 80s, allowing people to make fizzy drinks with the addition of flavored syrups to carbonated plain tap water, but its popularity faded while bottled sodas became more affordable.

Recently, the Israel-based provider reinvented itself as a good fizzy water company favored by younger and better being- and environmentally-conscious buyers, who would like to drink less soda and use fewer plastic bottles.

“With sugary carbonates and juices struggling and no turnaround in sight, mitigating the losses through newer and healthier goods will be needed for PepsiCo,” said Euromonitor International analyst Matthew Barry.

Euromonitor says water in bottles sales found 6.2 percent compound gross annual growth in the five years to 2017, while carbonated drinks sales were flat.

The offer announced on Monday could be the last for PepsiCo Chief Executive Indra Nooyi, who will hand over to Ramon Laguarta in the future this year.

In 12 years as CEO, Nooyi sought to expand PepsiCo’s offering of better food and drinks. It decided to buy Bare Foods in-may and KeVita refreshments in late 2016.

PepsiCo can pay $144 per share found in cash, representing a 10.9 percent premium to Friday’s closing price of SodaStream’s U.S.-listed stock and a 32 percent advanced to its 30-day average.

SodaStream’s shares were up 9 percent on Tel Aviv, while its U.S.-stated shares were up practically ten percent. PepsiCo shares had been up simply 0.3 percent as analysts questioned whether the package would move the needle for PepsiCo’s struggling beverages business.

“We remain worried about issues facing PepsiCo’s core organization and, as such, continue to check out limited upside for PepsiCo found in the around term,” Wells Fargo analysts explained.

They also noted that the high cost implied a multiple of 33 times forward revenue based on consensus estimates, although a source familiar with the problem said that conventional methods of valuing deals were not best in this instance.

Finally Ready

PepsiCo said SodaStream complements its normal water business, which includes Aquafina and smaller makes Bubly and Lifewtr. It really is attractive because it keeps growing quickly and allows persons to customize their refreshments, incoming CEO Ramon Laguarta stated.

“Clearly, this is about growth,” Laguarta said, noting that SodaStream would reap the benefits of PepsiCo’s resources in research and development, design and distribution.

Laguarta said PepsiCo had held talks with SodaStream many times during the past but wanted to make certain its business was great before doing a deal.

A good turnaround at SodaStream during the last 2 yrs was helped by activist hedge fund manager Teleios Capital Companions, which nominated an external prospect to the board found in 2016.

Adam Epstein, a co-founder of Teleios, which may be the fourth-largest shareholder found in SodaStream, said the offer “represents an excellent result for all shareholders”.

SodaStream’s performance improved following a shift in strategy that put considerably more emphasis on sparkling water above soda and cultivating a faithful user bottom that continues to utilize the device after getting it.

“Now we will be ready to make this commitment,” Laguarta said.

SodaStream’s shares have jumped 85 percent this year after a 78 percent upsurge in 2017. The U.S. shares shut on Friday near $130, up from $16.31 at the end of 2015.

In the most recent second quarter, earnings grew 31 percent, driven by growth in places including Germany and America, while net profit rose practically 82 percent.

Still, the notion of creating soft refreshments at home has had limited success to date.

Coca-Cola and Keurig Green Mountain forged a good partnership in 2015 to advertise a counter-top cold-drinks machine but pulled the plug the next year after it failed to take off.

It remains to be seen what Keurig Dr. Pepper (KDP.N) will do found in the space following merger previous month of coffee enterprise Keurig Green Mountain and Dr. Pepper Snapple.

New York-based PepsiCo will fund the cope with cash on hand and has focused on keeping SodaStream on Israel for at least 15 years.

PepsiCo said the purchase, unanimously approved by the boards of both companies, was expected to close by January 2019.

PepsiCo was advised by Goldman Sachs and Centerview, while SodaStream was advised by Perella Weinberg Companions.

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