SodaStream Buyout Doesn't Make Sense


Shares of SodaStream opened higher this morning after an overnight report in Israeli's Calcalist daily business newspaper indicated that PepsiCo might be trying to acquire the company behind the fast-growing carbonated beverage maker.

Really? That doesn't make sense.

Sources were telling the paper that the world's second-largest soda company was working on a $2 billion deal that would cash out SodaStream investors to the tune of roughly $95 a share. Given the explicit details of the story -- down to naming Goldman Sachs as the investment banker presenting the offer on PepsiCo's behalf and SodaStream checking with Coca-Cola to gauge interest before moving ahead on negotiations with PepsiCo -- it was just a matter of time before any of the named parties would squash the chatter.

PepsiCo did, denying that an offer was ever made. However, the story seemed ridiculous even before the denial.

SodaStream is definitely an interesting disruptor. A product that many originally dismissed as a fad has succeeded in dozens of countries all over the world. Revenue soared 34% in its latest quarter. At a time when Coca-Cola and PepsiCo are barely keeping up with inflation, SodaStream is taking off -- especially on the home turf of Coke and Pepsi.

Stateside unit sales of soda makers, gas refills, and syrups rose 78%, 101%, and 119%, respectively, during the quarter. Even in the seemingly reeling Europe, SodaStream's cranking out double-digit growth in its more mature market.

Given this kind of disruptive growth -- and forward valuations that are surprisingly comparable to those of Coca-Cola and PepsiCo -- it wouldn't be a surprise if someone snapped up SodaStream. However, it's just hard to fathom that buyer ever being Coca-Cola or PepsiCo.

They would have too much to lose. Home-brewed soda is still a tiny sliver of the consumption market. Buying SodaStream would validate the trend at the expense of sabotaging their lucrative soft drink businesses. We'll never see Coke or Pepsi sold as SodaStream syrups. It would cannibalize canned and bottled sales. It would infuriate bottlers.

PepsiCo and Coca-Cola can't afford to ignore SodaStream. It's growing at a time when they're not. It just teamed up with Samsung to introduce a refrigerator that dispenses carbonated water. Life is going to gradually get harder for PepsiCo and Coca-Cola, and that's before we address general soda consumption trends and reports attacking the unhealthy attributes of sugary soft drinks.

However, short of buying it up only so it could close it down, PepsiCo doesn't make sense as a buyer.

SodaStream is a great stock. I own it. I've successfully recommended it in Motley Fool newsletters. A buyout at a healthy premium would be welcome news. However, if it happens, it just isn't going to be PepsiCo, and this certainly isn't going to become a bidding war between Coca-Cola and PepsiCo.

Pop goes the world
SodaStream's carbonation technology sounds simple, but this razor-and-blade company offers an intriguing opportunity for growth that could very well disrupt the soda industry. The Motley Fool's premium report on SodaStream explains the opportunities as well as the risks in the company. The report comes with a year's worth of updates, so just click here to get started.

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Longtime Fool contributor Rick Munarriz owns shares of SodaStream. The Motley Fool recommends Coca-Cola, PepsiCo, and SodaStream. The Motley Fool owns shares of PepsiCo and SodaStream. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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