PepsiCo to Buy SodaStream for $3.2B
Four years ago, SodaStream International Ltd.’s shares languished at a record low, short sellers circled and big competitors prepared to storm the Israeli company’s market of selling at-home soft-drink machines.
Fast forward to Monday, and SodaStream is selling out to PepsiCo Inc. for US$3.2 billion after a remarkable turnaround engineered by Chief Executive Officer Daniel Birnbaum.
Birnbaum, a 55-year-old former Nike Inc. executive, switched the company’s marketing focus away from sugary soda, positioning it as a purveyor of healthy sparkling water. At the same time, the company’s reusable bottles appealed to consumers worried about the tons of plastic polluting the world.
“Drinking water is healthy; a lot of their marketing shifted to the health aspects,” said Steven Schoenfeld, founder of Bluestar Indexes, a New York-based financial-research firm focusing on Israel. “Soda has been in decline, water has been ascendant.”
The strategy, unveiled in 2014, didn’t pay off right away. The company’s shares continued to slide, bottoming out in February 2016 at close to US$12. But as sales increased and profits soared, the share price followed.
It didn’t hurt that an effort by Coca-Cola Co. to move into the at-home market fizzled out. Coke bought a stake in Green Mountain Coffee Roasters in 2014, though the soft-drink-making system they developed was discontinued in 2016 due to weak demand.
Consumers use SodaStream’s countertop machines to inject carbon dioxide into bottles of tap water. With optional sugary flavorings, they can create colas and fruit-flavored carbonated drinks. The company sells the machines, reusable bottles, gas canisters and flavorings.
The company and its predecessors have been around since 1903, though they hit the big time after private equity firm Fortissimo Capital bought control in 2007. SodaStream sold shares to the public at US$20 each in 2010 and was a hot stock in its first few years. As growth slowed and costs mounted, short sellers piled in, betting that further declines were ahead. Birnbaum’s strategy change reversed the trend, capturing the changing tastes of consumers.
Pepsi is paying US$144 a share in cash. With Monday’s jump, SodaStream has returned 612 per cent since its initial public offering. That’s about 29 per cent a year, which handily outpaces the 9.5 per cent annual return of an index of global beverage stocks.
“There’s a big secular shift going on, from colas and sweet sodas to sparkling water,” said Drew Beja, portfolio manager at Granahan Investment Management in Waltham, Massachusetts, which has owned SodaStream shares for several years and added to its holding in 2018. “It’s a worldwide phenomenon and we don’t see an ending anytime.”