Coverage: PepsiCo is buying SodaStream for $3.2 billion

PepsiCo Inc. announced Monday that it is buying SodaStream International, the Israeli company behind the do-it-yourself soda maker, for $3.2 billion, betting big on seltzer water.

Abha Bhattarai of The Washington Post had the news:

Seltzer sales have grown rapidly in recent years, as brands like La Croix, Topo Chico and Polar become household names. Much of the appeal, consumers say, is that the no-calorie, no-sugar drinks offer a healthful alternative to traditional sodas and diet drinks. And there is no shortage of options, as companies race to add alcohol, caffeine, even bacon flavoring to fizzy waters.

“Americans have been drinking seltzer for over a century, but we’ve hit a tipping point,” said Barry Joseph, author of the book “Seltzertopia: The Extraordinary Story of an Ordinary Drink.” “Seltzer isn’t just a beverage anymore; it’s become a lifestyle choice.”

Much of that, he said, is thanks to the skyrocketing popularity of La Croix, which in the past decade has reinvented itself “from a drink for Midwestern soccer moms to a hip, cool drink for millennials.” The brand, founded in La Crosse, Wis., in 1981, has become the poster child for seltzer’s comeback. (Shares of La Croix’s parent company, National Beverage Corp., have grown nearly 600 percent in the past five years.)

Sales of seltzer have grown 42 percent in the past five years, according to Beverage Marketing Corp., as Americans trade in sugary soda for more healthful options. U.S. soda consumption, meanwhile, is at a 31-year low, according to data from trade publication Beverage Digest.

Thomas Mulier of Bloomberg News reported that the deal is one of the final acts of outgoing CEO Indra Nooyi:

In one of her final acts as chief executive officer of PepsiCo, Indra Nooyi is betting on a razors-and-blades kind of business model to reanimate revenue growth that has been waning due to weak demand for traditional sugary soft drinks. SodaStream sells machines used with compatible carbon dioxide capsules and optional flavored syrups, and its success in locking in customers allowed it to recently raise its full-year outlook. PepsiCo said the move is also intended to boost sustainability because consumers fill reusable bottles.

“Time will tell if this is a good move — it caught me by surprise,” said Ken Shea, an analyst at Bloomberg Intelligence. “I look at it as less of a synergy and more as an additive to their business portfolio.”

SodaStream shares have jumped 49 percent this month after the company boosted its forecast for revenue growth this year to 23 percent and reported first-half figures that beat estimates. The stock rose as much as 11 percent to $143.75 in premarket trading.

Sara Eisen and Lauren Hirsch of CNBC.com reported that the deal will put PepsiCo into more homes:

The deal gives PepsiCo a new line through which it can reach customers in their homes rather than through stores. It comes as U.S. grocers are in a state of transformation, with 70 percent of shoppers expected to buy groceries online by 2025, according to Food Marketing Institute and Nielsen. Meantime, retailers are squeezing brands on price and giving increasing shelf-space to upstart and private label brands.

“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.