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PepsiCo (PEP) Acquires SodaStream, Expands Beverage Portfolio

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PepsiCo Inc. (PEP - Free Report) successfully sealed its previously announced deal to buy all outstanding shares of SodaStream International Ltd. for cash outlay of $3.2 billion ($144 per share). SodaStream has unique product offerings — including a vast sparkling water portfolio and customizable options, where consumers can make their preferred beverage in an environment-friendly way. SodaStream’s significant presence in the at-home refreshment market is also a great addition.

We believe that the PepsiCo-SodaStream merger is a win-win for both the companies. While PepsiCo is expected to gain from SodaStream's unique product offerings, the latter will benefit from robust distribution capabilities, strong brand recognition, and design and marketing efforts of PepsiCo. This, with support from PepsiCo’s research and development capabilities, provides significant opportunities for further expansion and innovation.

Notably, the deal is a significant step in PepsiCo's ‘Performance with Purpose’ vision, encouraging health and wellness through cost-effective and environment-friendly beverages. The acquisition not only fortifies PepsiCo’s beverage and fast-growing water portfolio — including Aquafina, Lifewtr and more — but also adds at-home refreshment beverage offerings. Further, SodaStream will prove to be a complementary business, expediting PepsiCo’s highly-nutritious and great-tasting beverage offerings.

Apart from strengthening PepsiCo's portfolio, this acquisition removes fears of intense competition from its arch rival — The Coca-Cola Company (KO - Free Report) , which recently announced plans to buy stakes in BODYARMOR. Coca-Cola’s investment in this sports drink brand, along with its POWERADE drink, might give a tough competition to PepsiCo’s Gatorade.

To counter headwinds that are arising from soft CSD sales, PepsiCo is growing its nutrition brands like Quaker, Tropicana and Gatorade, and expanding the portfolio of nutritious products in categories such as dairy, hummus and other fresh dips, and baked grain snacks. The company also broadened its beverage portfolio to include more non-carbonated beverages to decrease the dependence on colas. It has been expanding its value share in a number of its fastest-growing categories — including tea, enhanced water and sparkling water.

As part of these efforts, the company acquired Health Warrior Inc. in October 2018. Health Warrior makes plant-based products — including nutrition bars and on-trend offerings. This acquisition will expand PepsiCo’s nutrition portfolio, offering additional options to consumers in the nutrition bar category, which is a growing space.

While PepsiCo's shares reacted a little to the SodaStream buyout news, it gained 4.5% in the last three months against the industry’s decline of 3.6%. Currently, this beverage and snacking giant carries a Zacks Rank #3 (Hold).


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