“We get to play in a business — home beverages — where we don’t play,” PepsiCo CFO Hugh Johnston told CNBC.
With this move, PepsiCo is doubling down on its drinks business, which has struggled in North America as consumers move away from sugary, carbonated beverages. It also seemingly addresses the challenge that buying new drink brands risks cannibalizing its legacy beverages.
Tel Aviv-based SodaStream makes a machine and refillable cylinders through which users can make their own soda or carbonated water drinks.
The acquisition is one of the boldest moves that CEO Indra Nooyi has made in her 12-year tenure as CEO. Nooyi, who earlier this month announced her plans to step down, stewarded the company’s shift away from sugary products and introduced healthier alternatives. She also spent years warding off pressure from activist investor Nelson Peltz, whose presence cast a close eye on dealmaking.
PepsiCo President Ramon Laguarta, 54, will succeed the 62-year-old Nooyi effective Oct. 3.
“PepsiCo is finding new ways to reach consumers beyond the bottle,” Laguarta said in a statement.
For SodaStream, the deal is a further chance to broaden its reach through PepsiCo’s global footprint. It now distributes in 80,000 individual retail stores across 45 countries. Its biggest markets are Germany, France, Canada and the U.S.
The company helped create the market for in-home soda-making, but in recent years has promoted the product as a tool to make carbonated water, accommodating for changing tastes. Those efforts appear to have borne fruit with the company earlier this month reporting strong quarterly earnings that crushed estimates. The company tripled its earnings forecast for the year and the news sent SodaStream shares up more than 26 percent. Sales of its machines rose 22 percent in the quarter, to more than 1 million, while sales of gas refill units grew 17 percent, to a record 9.7 million.
Prior to the deal’s announcement, SodaStream shares had gained nearly 85 percent since the beginning of the year.
PepsiCo has made its own efforts at sparkling water, launching Bubly earlier this year to help fight against LaCroix.
SodaStream has had a longstanding relationship with PepsiCo. It began selling caps for Pepsi and Sierra Mist drinks on the platform in 2015. As a result, there has long been speculation that PepsiCo would acquire the company.
“We’ve been on and off talking to [SodaStream CEO Daniel Birnbaum,] for a couple of years, not just on acquiring them … he got convinced the cultural fit would be good,” said Johnston.
The deal came together in a “matter of weeks,” Johnston said. Birnbaum will remain with the company when the deal closes.
SodaStream is not the first drink appliance brand to be caught up in dealmaking as changing retail forces prompt food and beverage companies to rethink distribution. Keurig Green Mountain last month closed its acquisition of Dr Pepper Snapple, combining Dr Pepper Snapple’s retail distribution with Keurig’s single-serve business. Keurig Dr Pepper will also have access to the coffee brands and restaurants that its parent, JAB Holding, owns.
Keurig shut down its own attempt at an in-home carbonated water system, Keurig Kold, in 2016. Unlike Keurig, SodaStream does not use pods for its drinks, which it touts as a more environmentally friendly option.
PepsiCo’s acquisition of SodaStream is expected to close by January 2019, subject to a SodaStream shareholder vote and certain regulatory approvals.