Monday, August 20, 2018

Late August in the stock market is not usually the time one starts thinking about “Merger Monday,” but a surprising development has greeted investors this morning with news that soft drink and snack giant PepsiCo PEP will be acquiring DIY beverage company SodaStream SODA for $3.2 billion. This amounts to $144 per share, or an 11% premium to SodaStream’s closing price on Friday.

This appears to be the final big move for Pepsi’s formidable CEO Indira Nooyi, who took the helm 12 years ago when PEP shares were trading in the $60s, barely more than half where the shares are this morning. Moving away from pre-packaged, heavy-sugared drinks has been a goal of the corporation since traditional beverages like Pepsi have begun to flatline in favor of more health-conscience choices. SodaStream’s personalized carbonated drink machine brings that modern approach to soft drink consumption, as well as minimizes waste, which beverage companies have been criticized for in recent years.

This acquisition also follows last month’s merger of Dr. Pepper Snapple with Keurig Green Mountain to create Keurig Dr Pepper KDP, which also sought to capitalize on personalized beverages. And this occurred four years after Coca Cola KO bought a stake in Keurig to bring Pepsi’s main competitor part of this market, as well. But Pepsi’s purchase of SodaStream may bring this business line to a more profound level going forward.

That said, Pepsi did pay a ton for the Israel-based SodaStream — not just based on its aforesaid 11% premium to last week but to the roughly +30% sticker price from just one month ago. In fact, it was only about 10 quarters ago or so that SODA shares had bottomed out at around $13 per share, trading beneath its original 2010 IPO share price. But as incoming PepsiCo CEO Ramon Laguarta, who takes over for Nooyi this October, said upon news of the acquisition, ““PepsiCo is finding new ways to reach consumers beyond the bottle.” Apparently this stands, even at 10x the valuation of SodaStream just a couple short years ago.

SODA is trading up 10% in this morning’s pre-market. And PepsiCo, despite the acquirer typically selling off following big M&A announcements like these, is also trading up around half of 1%. The hot take from early traders seems to be favorable for this deal overall. Will this have an effect on PepsiCo’s competition, near term?

Mark Vickery
Senior Editor

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Coca-Cola Company (The) (KO): Free Stock Analysis Report
 
Pepsico, Inc. (PEP): Free Stock Analysis Report
 
SodaStream International Ltd. (SODA): Free Stock Analysis Report
 
Keurig Dr Pepper, Inc (KDP): Free Stock Analysis Report
 
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