PepsiCo Bets on Healthy, Eco-friendly With SodaStream Buy

Sodastream in bags

Sodastream in bags

SodaStream's shares were up 9 percent in Tel Aviv, while its USA -listed shares were up almost 10 percent. But many consumers only buy the SodaStream machines to make fizzy water without adding any flavors.

PepsiCo said it was acquiring all SodaStream's outstanding shares at $144 USA per share, a 32 per cent premium to the 30-day volume weighted average price.

The Sodastream faded from memory as pre-made soft drinks became cheaper, but it is popular again simply for making sparkling water at home.

"We remain concerned about challenges facing PepsiCo's core business and, as such, continue to see limited upside for PepsiCo in the near term", Wells Fargo analysts said.

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The SodaStream acquisition will probably be the last big move by PepsiCo chief executive officer Indra Nooyi who steps down in October. The PepsiCo CEO, Ramon Laguarta, claims that he thinks the company will remain in Israel "forever" because "the infrastructure is so powerful". The deal will give the brand access to PepsiCo's distribution capabilities, global reach, R&D, design and marketing expertise with the aim of fuelling expansion and innovation.

A turnaround at SodaStream over the last two years was helped by activist hedge fund manager Teleios Capital Partners, which nominated an external candidate to the board in 2016.

According to The Wall Street Journal, "Sparkling water has grown far more strongly than the overall bottled water category in the US, clocking volume growth of 38% a year ago up from 35% in 2016 according to data from industry tracker Beverage Marketing Corp".

SodaStream's shares have jumped 85 percent this year after a 78 percent increase in 2017.

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The deal between Pepsi and Sodastream still needs to clear cursory regulatory hurdles, but PepsiCo plans to pay $144 (£113) cash per SodaStream share in the transaction using cash on hand. As Reuters notes, Coca-Cola and Keurig Green Mountain tried to make their own at-home soda system work in 2015 called the Keurig Kold but that project was quickly abandoned.

Sales of soft drinks, PepsiCo's traditional products, are struggling.

If regulators approve the deal, it is expected to be finalised by January 2019, subject to a vote by Sodastream shareholders.

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