Bring out the bub­bly

Financial Mail - - SHOP TALK - @zeenat­moorad

If you were a 1970s or 1980s kid, hav­ing a So­das­tream at home gave you in­stant street cred. Mak­ing your own cooldrinks in your kitchen. From tap wa­ter and flavoured syrup. That was the epit­ome of cool. Later, when Coca-cola and Pepsi be­came dom­i­nant, per­suad­ing drinkers that they could make bet­ter ver­sions of th­ese read­ily avail­able (and cheaper) al­ter­na­tives be­came a tough sell for So­das­tream. The prod­uct was rel­e­gated to niche sta­tus. Like in­stant mashed potato, mar­garine and con­densed milk in a tube.

This week Pep­sico, the global con­sumer brand com­pany that makes Dori­tos, bought So­das­tream for $3.2bn.

Very sim­ply, bev­er­age and food com­pa­nies are broad­en­ing their of­fer­ings be­yond salty potato chips and cooldrinks by in­tro­duc­ing health­ier al­ter­na­tives. Pep­sico has added hum­mus, oats and wa­ter to its sta­ble.

Ri­val Coca-cola now sells milk, co­conut wa­ter and tea. More re­cently, it bought a stake in sports-drink Bod­yarmor, whose back­ers in­clude for­mer bas­ket­ball star Kobe Bryant.

Th­ese days, Is­rael-based So­das­tream pro­motes it­self more as a tool for mak­ing car­bon­ated wa­ter — or seltzer, if we’re go­ing to be posh about it — than as an at-home fizzy­drinks maker.

You will know that, glob­ally, soda con­sump­tion has dropped. And in the US sparkling wa­ter sales have ac­tu­ally grown more quickly than the over­all bot­tled wa­ter cat­e­gory.

Pep­sico has made its own ef­forts in the sparkling wa­ter cat­e­gory, launch­ing Bubly ear­lier this year to try take on Lacroix, the sugar-free, flavoured sparkling wa­ter that’s in­spired zealotry among mil­len­ni­als.

Pep­sico is also bet­ting on So­das­tream’s ra­zors-and-blades kind of busi­ness model. Re­mem­ber that it sells the ma­chines, re­us­able bot­tles, gas can­is­ters and flavour­ings.

Num­bers-wise, the deal will work like so: Pep­sico will pay $144 a share (in cash) for So­das­tream’s outstanding stock. This rep­re­sents a 10.9% pre­mium to last Fri­day’s clos­ing price of So­das­tream’s Us-listed stock and a 32% pre­mium over So­das­tream’s av­er­age weighted share price over the past 30 days.

Gold­man Sachs and Cen­ter­view ad­vised Pep­sico, and So­das­tream was ad­vised by Perella Wein­berg Part­ners.


Turn­ing wa­ter into cola

An­a­lysts say the deal will give Pep­sico bet­ter reach into mar­kets such as Ger­many and Ja­pan, where So­das­tream is … big (sorry, I couldn’t re­sist). So­das­tream dis­trib­utes in 80,000 in­di­vid­ual re­tail stores across 45 coun­tries, by the way.

The deal, Pep­sico’s largest in eight years, is likely to be the last for CEO In­dra Nooyi. She is due to step back in Oc­to­ber, leav­ing her suc­ces­sor,

Ra­mon Laguarta, to make this trans­ac­tion pay off.

It’s funny, though, that Pep­sico and So­das­tream have ended up as bed­fel­lows. Over the years, So­das­tream hasn’t wasted an op­por­tu­nity to blast bot­tled-wa­ter mak­ers for pol­lut­ing the en­vi­ron­ment.

“Shame on Pep­sico,” said So­das­tream boss Daniel Birnbaum last year, af­ter Pep­sico’s Su­per Bowl ad for its new bot­tled wa­ter, LIFEWTR. “I’ll say it till I’m blue in the face: the bot­tled-wa­ter in­dus­try is the big­gest mar­ket­ing scam of all time. Like about half of the bot­tled wa­ter in Amer­ica, in­clud­ing Coca-cola’s Smart­wa­ter and Dasani, Pep­sico’s new wa­ter brand comes mostly from the same mu­nic­i­pal wa­ter sources as tap wa­ter. The truth is that con­sumers can get wa­ter with­out the bot­tle and for a frac­tion of the price.”

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