OCCUPIED JERUSALEM / LONDON: PepsiCo is set to buy carbonated drink-machine maker SodaStream for $3.2 billion as it battles Coca-Cola for an edge in the health-conscious beverage market. Founded in Britain in 1903, SodaStream was a coveted device in British kitchens in the 1970s and 80s, allowing people to create fizzy drinks by adding flavored syrups to carbonated tap water, but its popularity faded as bottled sodas became cheaper.
The Israel-based company now markets itself as a sparkling water maker to appeal to younger and more health and environmentally conscious consumers, who do not drink much soda.
“With sugary carbonates and juices struggling and no turnaround in sight, mitigating the losses through newer and healthier products will be essential for PepsiCo,” Euromonitor International analyst Matthew Barry said.
Euromonitor says bottled water sales saw 6.2 percent compound annual growth in the five years to 2017, while carbonated soft drinks sales were flat.
The deal announced Monday may be the last for PepsiCo Chief Executive Indra Nooyi, who hands over to Ramon Laguarta later this year.
In 12 years as CEO, Nooyi sought to expand the company’s offering of healthier food and drinks.
It agreed to buy Bare Foods in May and KeVita drinks in late 2016.
PepsiCo will pay $144 per SodaStream share in cash, representing a 10.9 percent premium to Friday’s closing price of SodaStream’s U.S.-listed stock and a 32 percent premium to its 30-day average.
The New York-based group will fund the deal with cash on hand.
SodaStream’s U.S.-listed shares were up 10.5 percent in pre-market trading. PepsiCo said SodaStream complements its water business, which includes Aquafina and smaller brands Bubly and Lifewtr.
The company is also experimenting with other non-bottled drinks, including Drinkfinity, which is sold in pods.
PepsiCo said the transaction, unanimously approved by the boards of both firms, was expected to close by January 2019.
It said the purchase was another step in its bid to “promoting health and wellness through environmentally friendly, cost-effective and fun-to-use beverage solutions.”
Speculation about PepsiCo or Coca-Cola buying Sodastream has bubbled for years.
The company had marketed itself as a more environmentally friendly alternative to mainstream bottled drinks and therefore a threat to the giant producers.
But the notion of creating soft drinks at home has had limited success. Over the years, many users have used Sodastream only for making fizzy water, without the flavored syrups it sells.
Coca-Cola and Keurig Green Mountain forged a partnership in 2015 to market a counter-top cold-drinks machine, but pulled the plug the following year after it failed to take off.
It remains to be seen what Keurig Dr Pepper will do in the space.
The company was created last month by the merger of Keurig Green Mountain, now owned by private investment firm JAB Holding, and Dr Pepper Snapple.
Adam Epstein, who is a co-founder of Teleios Capital – a top-10 SodaStream shareholder – said the company’s focus on its core product, and disciplined approach, had started to pay off in recent quarters, with “a rapidly growing installed base of loyal users and transformational improvement in operating performance.”
Epstein said that the PepsiCo deal “represents an excellent outcome for all shareholders.”