PepsiCo (PEP) announced today that it will take over Israel-based SodaStream (SODA) known for its DIY seltzer makers, in a deal worth $3.2 billion.
"PepsiCo and SodaStream are an inspired match," CEO Indra Nooyi said in a statement. It's "an extraordinary company that is offering consumers the ability to make great-tasting beverages while reducing the amount of waste generated."
Three logistics principles are: (1) don't ship air, (2) don't ship water, and (3) consolidate, consolidate, consolidate. That's why beverage makers and Consumer Packaged Goods (CPG) producers place manufacturing facilities near major metropolitan areas, to reduce distribution costs and keep materials from traveling long distances.
Such fundamentals are only a small piece of the official reasoning for the purchase. It’s also about diversification of the company’s product offerings, and maintains Pepsi’s focus on healthier offerings. It also takes advantage of a part of the market that has gained traction in beverages over the past couple of years, and that's the popularity of the La Croix carbonated water line.
“Carbonated still has a place,” CEO Larry Young said after a Dr Pepper Snapple merger earlier this year."
The deal comes as beverage and snack giant PepsiCo continues to seek ways to diversify its business away from sugary sodas. SodaStream’s countertop device enables consumers to quickly carbonate water. Flavor can be added with special drops and syrups. The idea of letting consumers customize their own level of carbonation and sweetness may also play into the strategy.
SodaStream's stock has surged more than 320% in the past two years after it rebranded itself as a sparkling water company.
Nooyi said this month said she'll step down in October after more than ten years as CEO. She has steered Pepsi toward healthier offerings, saying it's important for the company's future because of consumers' increasing attention to health. SodaStream's products, marketed as a healthy alternative to sugary sodas, fits PepsiCo's goal of "making more nutritious products while limiting our environmental footprint," Nooyi said. "Together, we can advance our shared vision of a healthier, more sustainable planet."
Over her tenure, Nooyi split PepsiCo's products into three categories: Fun For You includes traditional, higher-calorie soft drinks and snacks. Better For You includes diet drinks and lower-calorie snacks, such as baked potato chips instead of deep-fried. Good For You includes foods such as Quaker Oats oatmeal, Sabra hummus, and Naked Juice smoothies.
The deal will be funded using PepsiCo's cash on hand and has been unanimously approved by the boards of both companies. It is expected to close by January, pending a SodaStream shareholder vote and certain regulatory approvals.
Nooyi, who will be replaced by Ramon Laguarta, PepsiCo's head of global operations, helped turn Pepsi into one of the most successful food and beverage companies in the world. Sales grew 80% during her 12-year tenure.
An intriguing question now emerges after two major carbonated beverage makers have joined forces with DIY soda streams: what will Coke do? This could well be the beginning of a whole new carbonated beverage war. Let the games begin.