In what seems to be the cementing of outgoing CEO Indra Nooyi’s legacy in healthy beverages, PepsiCo has agreed to acquire SodaStream for a premium, the deal totalling $3.2 billion. One of the simplest acquisition deals, PepsiCo is paying $144 a share in cash for the home beverage maker. No share percentages, just straight, cold, hard cash. This $144 per share purchase price was about an 11% premium to SodaStream’s closing price, and represents an almost 100% return to shareholders based on end of year closing for 2017. Not a bad deal at all.
Bubbling to success with SodaStream
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Pepsi ($PEP) recognized a fantastic opportunity and a growing company that was directly in line with its core values and growth strategy. SodaStream grew at a 516% jump in net income over a three year timeframe, and a 31.3% jump in sales year over year.
Pepsi sees this acquisition not only as an opportunity for expansion in the beverage market, it picks up a business that is also focused on consumables, but it’s easier to ship on a recurring basis a small case of concentrated Pepsi syrup vs a whole pallet of Pepsi products in cans to someone’s house (duh). This strategy could also cement Pepsi as the “home” soda, bringing access to the brand to consumers in new ways.
Pepsi sees the long game
Obviously this is a play for the long term. You don’t spend $3.2 billion on something just to see a quarter or two of growth. Looking at graphics and numbers given to us directly from SodaStream International, they only have a 1.4% active household penetration rate in the US. Couple that with the average lifetime value of a consumer to be roughly $460 (current product offerings, but that could expand and increase under the Pepsi moniker), and you can see why a 10% premium was an absolute STEAL for Pepsi to pick this company up.
Pepsi goes healthy
We are also in a day and age when more and more consumers are shying away from “sugary” “soda” drinks (that term is used loosely), and headed toward healthier alternatives. Pepsi is now the dominant force in a budding market, allowing people to control flavors, sugar content, and carbonation levels at home. This kind of choice can only bode well for Pepsi and its growth.
If you are as bullish as we are on Pepsi, and want to catch more of the upside without buying a fairly mid- to high stock, grab some long call options. Buying 19 JUNE 2020 $135 CALL would cost you $3.54 a share, for an entry of $354. If the stock hits $141 a share by 12 APR 2020, your exit would be $7.55 a share, for a total profit of $401, a return of 113%.