PepsiCo Fortifies Sparkling Water Range With SodaStream Buyout
PepsiCo, Inc. PEP has inked a deal to buy SodaStream International Ltd. SODA for a total cash outlay of $3.2 billion. Per the terms of the agreement, PepsiCo will acquire all the outstanding shares of this leading carbonated drink machine manufacturer — SodaStream — for $144 per share, representing a 32% premium on the 30-day volume weighted average price. PepsiCo expects to finance the purchase using its cash in hand.
Approved by the boards of both companies, this transaction is likely to close by January 2019 and remains conditioned upon SodaStream’s shareholder vote, and other customary and regulatory approvals.
Notably, the deal is a significant step in PepsiCo's Performance with Purpose vision, thus encouraging health and wellness via cost-effective and environmentally-friendly beverages. The transaction will also fortify the company’s beverage and fast-growing water portfolio, including Aquafina, Lifewtr and more, thus adding in-home refreshment beverage offerings. Further, SodaStream will prove to be a complementary business, expediting PepsiCo’s highly-nutritious and great-tasting beverages offerings.
With growing awareness on health and wellness, consumers are particularly vigilant about the use of artificial sweeteners, high sugar content and related obesity concerns. This is hurting the growth of CSD category, resulting in lower volumes and weak sales. The diet colas are also under pressure due to increasing consumer concern regarding the use of artificial sweeteners. Additionally, potential new taxes on sugar-sweetened beverages and growing regulatory pressures are affecting CSD sales. The above transaction is expected to enable PepsiCo to cater to consumers’ growing flair for personalized drinks, thus offering innovative solutions.
Apart from strengthening PepsiCo's portfolio, this agreement might alleviate the fears of intense competition from biggies like The Coca-Cola Company KO. Recently, Coca-Cola has announced plans to buy a minority ownership stake in BODYARMOR. Per analysts, Coca-Cola’s investment in this sports drink brand along with its POWERADE drink might give a tough fight to PepsiCo’s Gatorade.
In fact, we believe that the PepsiCo-Sodastream deal is a win-win for both companies. While PepsiCo is expected to gain from SodaStream's unique product offerings, the latter will benefit from robust distribution capabilities, strong brand recognition, design and marketing efforts of the former.
While PepsiCo's shares reacted little to the news, SodaStream soared 9.4% on Aug 20. In the past three months, PepsiCo has gained 15%, outperforming the industry’s 8.2% rally.
Currently, this beverage and snacking giant carries a Zacks Rank #3 (Hold). A better-ranked stock in the broader Consumer Staples sector is Archer Daniels Midland Company ADM. The company pulled off an average positive earnings surprise of 18.6% in the trailing four quarters and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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