PepsiCo, Inc. (NYSE: PEP) announced a $3.2 billion buyout of carbonated beverage maker SodaStream International (SODA) on Monday morning. PEP stock didn’t move much on the news, and analysts say the deal will do little to ease the pressure on PepsiCo’s business.
PepsiCo is paying $144 per SodaStream share in the deal, which represents a 32 percent premium to the SODA stock’s 30-day trading average. PepsiCo will gain access to the at-home carbonated drink market via SodaStream, potentially opening up a new growth avenue.
“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,” CEO-elect Ramon Laguarta says in a statement. Laguarta will be taking over for outgoing CEO Indra Nooyi on Oct. 3.
The deal likely didn’t blindside PepsiCo investors. PepsiCo and SodaStream have been partners since 2015, which has led to market speculation of a potential buyout at some point.
There has been a wave of consolidation in the beverage market in recent quarters as leaders such as PepsiCo and The Coca-Cola Co. (KO) have struggled to grow organically in a difficult North American beverage market. Keurig Green Mountain and Dr Pepper Snapple recently combined to form Keurig Dr Pepper (KDP). Last week, Coca-Cola took a minority ownership stake in sports drink BodyArmor.
Bank of America analyst Bryan Spillane says SodaStream provides PepsiCo with both a growth lever and a public relations opportunity.
“SODA potentially helps PEP in achieving its 2025 sustainability targets on sugar reduction on beverages,” Spillane says. The company currently has 43 percent of servings at 100 calories or below, and has a goal of 67 percent, he says.
The deal will likely have roughly a neutral impact on PepsiCo’s near-term earnings per share. “While the market will likely balk at the multiple, this is a relatively small venture to try to make inroads on waste and sugar,” Spillane says.
Wells Fargo analyst Bonnie Herzog says she questions whether SodaStream is the solution for PepsiCo’s sluggish North American Beverage segment. “In short, we remain concerned about challenges facing PepsiCo’s core business – and, as such, continue to see limited upside for PepsiCo in the near term,” Herzog says.
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