Who Will Buy SodaStream?

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Is someone getting busy with the fizzy?

A rumor making its way through cyberspace this week suggests that companies may be trying to acquire SodaStream (Nasdaq: SODA  ) .

This is the kind of chatter that is wrong more than 99% of the time. Anyone can orchestrate an acquisition thesis, tossing in the logical buyers. However, we may as well delve deeper into this particular round of hearsay.

Wall St. Cheat Sheet wrote about "fresh rumors that it may be a candidate for takeover" yesterday.

So far, so good. SodaStream is a fast-growing yet misunderstood company. Cynics arguing that the Israeli company's portable soda-making system is a fad apparently haven't seen the torrid growth that SodaStream has been generating for years.

It's certainly a feasible and attractive acquisition candidate, but let's read on.

The story goes on to suggest that the usual suspects -- Kraft Foods (NYSE: KFT  ) , PepsiCo (NYSE: PEP  ) , and Coca-Cola (NYSE: KO  ) -- might have company this time.

"SodaStream is a worldwide target with a market cap that's still under $1 billion," Wall St. Cheat Sheet concludes. "The list of suitors could thus be considerably longer, with a sleeper or two included."

Now, I can see Kraft making a play, but the chatter loses all credibility when Coke and Pepsi enter the fray.

Cola wars
I have yet to hear a single valid reason as to why either of the world's two largest soft drink companies would make a play for SodaStream.

You don't really think that Coke or Pepsi would ever make their syrup available at the retail level. Right? Offering Coke or Pepsi flavors as SodaStream options would be a major win for SodaStream, but this would destroy Coke or Pepsi. The brazen move would betray the global network of regional bottlers. It would create a shift in consumer perception. Who wouldn't prefer to make a fresh serving of Diet Coke instead of buying it in cans or plastic bottles?

The entire SodaStream model is built on the freshness, value, convenience, and eco-friendly nature of making your own soda when pitted against store-bought pop. Why would either company validate that? Coke and Pepsi would lose far more than they gain. Short of buying the company to close it down -- with Coke and Pepsi drawing straws to see which one pays a premium to fall on the grenade -- there is zero merit to any traditional soft drink behemoth snapping up SodaStream.

You're invited to use the comments box below to sway me otherwise, but I have yet to hear a scenario where that works.

Beyond the fizz stars
Kraft is the only name of the three that does make sense.

Kraft struck a deal with SodaStream to begin offering its Crystal Light diet drinks and Country Time lemonade as co-branded flavors for SodaStream's platform earlier this year.

If Crystal Light and Country Time translate well into homemade carbonation, Kraft also has Capri Sun, Tang, and Kool-Aid in its arsenal.

Perhaps more important, Kraft is a beast in retail distribution, especially in supermarkets, convenience stores, and drugstores, where SodaStream has yet to make a push. Kraft would expand SodaStream's reach without conflicting with any of Kraft's lines. It's why the two companies became partners in January. Kraft makes sense. Coke and Pepsi do not.

You can't marry a runaway bride
There is no shortage of suitors if you open up the world of deep pockets. If you think SodaStream is a hit here, keep in mind that less than a third of its revenue is currently coming from North and South America. Western Europe, where SodaStream has been available for a lot longer, accounts for a little more than half of its revenue.

It's easy for stateside speculators to toss around stateside buyers.

Why not Monster Beverage (Nasdaq: MNST  ) ? The shares took a beating on Wednesday after a pair of senators urged the FDA to consider greater regulatory scrutiny of the energy drink market. Diversifying into more traditional soft drinks would be a smart tactical approach, and buying SodaStream would be accretive.

Monster is a quality growth company trading for 27 times this year's earnings and 22 times next year's projected profitability. SodaStream, though, is growing substantially faster yet fetching only 18 times this year's target and less than 15 times next year's earnings forecast.

So why would SodaStream cash out to anybody? It's not in trouble. The stock has doubled off its IPO price of $20 two years ago. It has blown past Wall Street's profit estimates in each and every quarter as a public company. SodaStream's latest quarter was another beauty, leading the pop star to boost its guidance after seeing quarterly revenue and adjusted earnings soar 49% and 37%, respectively.

So let's let the buyout chatter pass. SodaStream doesn't have a reason to cash out unless it's at a ridiculous premium, and that's something that a global buyer is unlikely to pay. Some of the names that continue to be tossed out as potential suitors fail the logic test as buyers.

SodaStream is doing fine on its own. Let's stop trying to match it up.

Drink up
SodaStream is blazing as a consumer-facing growth stock -- and it's just the kind of stock that legendary investor Peter Lynch used to single out before his peers caught on. In the same mold, our analysts' new free report singles out three millionaire-maker stocks that will pique your interest. SodaStream isn't one of them, but there are several other great opportunities for you to consider: Check it out now.

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

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

Read/Post Comments (4) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 14, 2012, at 1:34 PM, longdoc wrote:

    "It would create a shift in consumer perception. Who wouldn't prefer to make a fresh serving of Diet Coke instead of buying it in cans or plastic bottles?"

    Innovate or your competition will.

  • Report this Comment On September 15, 2012, at 12:27 PM, jmorin85 wrote:

    Kraft Foods, in my opinion, makes the most sense. Product wise, and what they have done with their products like Crystal Light, Kraft Mio, and similar product offerings, this makes sense long term and an easy way to break into a new market for them.

    SodaStream and its products SCREAM 'innovation' and 'responsible environmental sustainability'. Going into the future, companies are going to have to jump on this bandwagon or get left behind.

    I can see Pepsi or CocaCola doing this ONLY for the environmental factor, to have their foot in the door and be able to say 'we were their first'.

    Either way, if it's Kraft or one of the other big two - it'll come at a premium price. But, that being said, it will pay off in the long term. Especially if they can get distribution past the Walmarts, etc... of the world and into the local convinence stores like 7/11, etc..

    Kraft Foods already has their foot in the door... I wouldn't be surprised that in 2013 or 2014 they make a move on this and aquire it.

    I've looked at it in the store, and it has potential. I am considering purchasing one myself. It has appeal - both for the environmental factor and the cost factor.

  • Report this Comment On September 17, 2012, at 1:55 PM, dapperone wrote:

    Why limit the speculation to beverage and food companies? A kitchen goods/small appliance manufacturer, such as Delongui or Cuisineart, could also be a logical candidate.

  • Report this Comment On September 18, 2012, at 7:25 PM, LQM2 wrote:

    The appeal of SODA continues to escape me. The fastest growth segment of the coffee business is single serve, which in the soda world, KO and PEP own. Yet SODA is selling the equivalent of the old coffee pot. Feels like a fad. Seems like GMCR would be a way better fit for KFT.

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