PepsiCo taps healthier drinks market with SodaStream deal

NEW YORK, USA – Going after consumers concerned about health and the environment, PepsiCo on Monday, August 20, announced the purchase of Israeli company SodaStream to tap its command of the homemade fizzy water market.

With the $3.2 billion purchase, the US beverage giant continues its effort to contend with falling demand for sugar-laden soft drinks, especially sodas. SodaStream makes machines that carbonate home tap water.

PepsiCo and arch-rival Coca-Cola have been diversifying away from their mainstay sodas in part to counter the onset of anti-obesity sugar taxes around the world.

The acquisition also is a pitch to consumers concerned about mounting waste from soda cans and plastics in landfills around the world, since SodaStream employs reusable bottles.

PepsiCo chief executive Indra Nooyi, who is stepping down following 12 years at the helm, the purchase of Tel Aviv-based SodaStream fit in with the US company’s sustainability push, which involves pledges on producing healthier goods, more efficient use of water and reducing waste.

“Together, we can advance our shared vision of a healthier, more-sustainable planet,” Nooyi said.

SodaStream Chief Executive Daniel Birnbaum said the deal would open new markets to his company through PepsiCo’s global distribution and marketing network, adding that the company would keep its operations in Israel.

“Nobody has come here to obtain, to take, to close down and build a copy anywhere else,” Birnbaum said at a news conference in Tel Aviv that was attended by incoming PepsiCo Chief Executive Ramon Laguarta.

The company’s website celebrated the news with a 20% discount offer using the code “PEPSICO” – but it’s only good for 24 hours.

Staying in Israel

Laguarta said PepsiCo committed to keeping Israel the headquarters for 15 years, praising the company’s infrastructure and the “amazing” knowhow of factory staff.

Israeli Prime Minister Benjamin Netanyahu welcomed PepsiCo’s commitment to the country, saying “recent large acquisitions of Israeli companies prove not only their technological abilities but also the business abilities which have been developed in Israel.”

SodaStream, which is listed on the New York and Tel Aviv stock exchanges, has not been immune to the complex politics in its home region.

In 2015, SodaStream shut down a plant in the West Bank following a boycott campaign that included targeting Hollywood actress Scarlett Johansson after she advertised its product.

Under the cash deal, PepsiCo is to pay $144 a share for the fizzy water makers outstanding stock, a premium of 11% over its closing price on Friday.

SodaStream’s revenues were $543.4 million, while PepsiCo had revenues of $63.5 billion.

SodaStream shares jumped 9.4% to close at $142.11 in New York, while PepsiCo slipped 0.1% to $114.94.

Morningstar analyst Sonia Vora said acquisition fit well with PepsiCo’s push for “more natural and nutritious offerings,” but added that it was unlikely to significantly boost earnings because of SodaStream’s small size.

Healthier options

Under Nooyi’s vision to move away from traditional sugary sodas, PepsiCo launched Drinkfinity this year, a new beverage based on tap water. Consumers buy flavored pods to inject a choice of tastes into a reusable bottle, such as acai berry, coconut-watermelon and elderflower.

Coca-Cola, for its part, said last week that it was buying a stake in BodyArmor, a maker of sports drinks that is endorsed by retired basketball star Kobe Bryant and offers a diet version of the drink is naturally sweetened.

Matthew Barry, senior analyst of beverages at Euromonitor International, said deals like the SodaStream purchase were vital for PepsiCo as it passes to new management.

“With sugary carbonates and juices struggling and no turnaround in sight, mitigating the losses through newer and healthier products will be essential for PepsiCo,” he said in a research note.

“Consumers around the world are more and more interested in low-sugar beverage options. Sugar taxes also represent a prominent threat.” – Rappler.com

Soft drinks bottles image via Shutterstock