PepsiCo Enhances Healthier Portfolio With SodaStream Acquisition

PepsiCo and SodaStream logos
The deal with the sparkling water company is valued at $3.2 billion.

PURCHASE, N.Y. — PepsiCo Inc. is building its presence in the water segment with the pending acquisition of SodaStream International Ltd.

Under terms of the agreement, PepsiCo will acquire all outstanding shares of SodaStream for $144 per share in cash, which represents a 32-percent premium to the 30-day volume weighted average price.

The transaction, which is valued at $3.2 billion, will be funded with PepsiCo's cash on hand.

"PepsiCo and SodaStream are an inspired match," said PepsiCo Chairman and CEO Indra Nooyi. "Daniel [Birnbaum] and his leadership team have built an extraordinary company that is offering consumers the ability to make great-tasting beverages while reducing the amount of waste generated."

That focus, she added, is well aligned with Performance with Purpose, PepsiCo's philosophy of making nutritious products while limiting its environmental footprint.

"Today marks an important milestone in the SodaStream journey. It is validation of our mission to bring healthy, convenient and environmentally friendly beverage solutions to consumers around the world," said Daniel Birnbaum, SodaStream CEO and director.

"We are honored to be chosen as PepsiCo's beachhead for at home preparation to empower consumers around the world with additional choices. I am excited our team will have access to PepsiCo's vast capabilities and resources to take us to the next level. This is great news for our consumers, employees and retail partners worldwide." 

PepsiCo's strong distribution capabilities, global reach, research and development, design and marketing expertise, combined with SodaStream's differentiated and unique product range will position SodaStream for further expansion and breakthrough innovation, according to the companies.

The transaction is another step in PepsiCo's Performance with Purpose journey, promoting health and wellness through environmentally friendly, cost-effective and fun-to-use beverage solutions.

"SodaStream is highly complementary and incremental to our business, adding to our growing water portfolio, while catalyzing our ability to offer personalized in-home beverage solutions around the world," said Ramon Laguarta, CEO-elect and president, PepsiCo. 

"From breakthrough innovations like Drinkfinity to beverage dispensing technologies like Spire for foodservice and Aquafina water stations for workplaces and colleges, PepsiCo is finding new ways to reach consumers beyond the bottle, and today's announcement is fully in line with that strategy," Laguarta said.

Analysts Weigh In

As Vivien Azer, director and senior research analyst at Cowen & Co., noted the deal will give PepsiCo greater exposure to the water company as it continues to deliver on its Performance with Purpose vision. 

"We believe that entering into an alternative beverage platform makes sense given all of the fragmentation seen throughout retail, in particular with the emergence of e-commerce. The focus on sparkling water is aligned with health and wellness and fits the company's Performance with Purpose vision," Azer said.

"Indeed, consumers continue to show that they prefer healthier beverage alternatives to soda, which has been reflected in recent Nielsen trends, where category dollar sales for sparking and still water are growing mid-to-high teens."

According to Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities LLC, the transaction should accelerate PepsiCo's ongoing strategic shift towards adding healthier options across its product mix and complement the company's growing water portfolio — including its recently launched bottled sparkling water brand Bubly.

In addition, the deal will diversify PepsiCo's product and channel mix by giving it a foothold in the in-home beverage market, which we think could drive revenue synergies.

In the other end of the deal, PepsiCo's large global footprint will likely provide SodaStream with access to new markets and stepped-up marketing, and research and development spend, Herzog explained.

"That said, we can't help but see parallels to The Coca-Cola Co.'s decision to acquire a stake in Green Mountain in 2014, and question whether this deal — which also brings together a large consumer packaged goods company and an in-home beverage maker — will do much to solve PepsiCo's ongoing struggle to improve volumes in its North American beverage segment," she added.

The boards of directors of both companies unanimously approved the acquisition. It is subject to a SodaStream shareholder vote, certain regulatory approvals and other customary conditions, and closing is expected by January.

Goldman Sachs and Centerview acted as financial advisors to PepsiCo in this transaction. Gibson, Dunn & Crutcher LLP acted as lead counsel to PepsiCo, Davis Polk & Wardwell LLP as U.S. tax counsel, and Herzog, Fox & Ne'eman as Israeli legal counsel. 

Perella Weinberg Partners acted as financial advisor to SodaStream with White & Case LLP acting as SodaStream's U.S. legal counsel and Meitar Liquornik Geva Lesham Tal as Israeli legal counsel.

Purchase-based PepsiCo generated more than $63 billion in net revenue in 2017, driven by a complementary food and beverage portfolio that includes Frito-Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana. PepsiCo's product portfolio includes 22 brands that generate more than $1 billion each in estimated annual retail sales.

Based in Israel, SodaStream is the No. 1 sparkling water brand in volume in the world, and a leading manufacturer and distributor of sparkling water makers.