SodaStream Buyout Doesn't Make Sense

Shares of SodaStream (NASDAQ: SODA  ) opened higher this morning after an overnight report in Israeli's Calcalist daily business newspaper indicated that PepsiCo (NYSE: PEP  ) 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 (NYSE: KO  ) 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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Comments from our Foolish Readers

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  • Report this Comment On June 06, 2013, at 11:41 AM, TurbulentTime wrote:

    I don't think it is "never" type of case for either Pepsi-Co and Coca Cola to consider buying Soda Stream, it is just a matter of when. If they feel threaten enough, and see that home-made soda will be a much brighter future down the road.

    I own SODA since $35, I think that the deal with Samsung is exceptionally wonderful. I do think that we will most likely see Soda Stream reaching market cap of north of 5 billions within the next 2 to 4 years. It is an exceptional growth stock, alongside with Tesla Motor, Green Mountain Coffee Roaster, SolarCity, LifeLock, to name just a few.

  • Report this Comment On June 06, 2013, at 11:48 AM, TurbulentTime wrote:

    Also, I actually think that Starbucks has a high possibility to buy out Soda Stream. It has been on a buying fency from bakery in San Francisco, Evolution fruit juice company, to Teavana tea chain last year. It may expand its presence to healthier soda drink by buying up Soda Stream... Who knows...

  • Report this Comment On June 06, 2013, at 11:49 AM, TheDumbMoney wrote:

    Long since $41.5 and $28.5, and this to my knowledge is the only stock I have ever purchased that I found out about through a Fool.com article (though I purchased it six months or so after you recommended it, after it ran up a ton from where you recommended it and then fell off a cliff). Thanks for bringing this one to my attention. It was hugely undervalued not only because of fad concerns, but also because it reported in Euros at a time when the Eurozone crisis was at its peak.

  • Report this Comment On June 06, 2013, at 1:00 PM, TMFBreakerRick wrote:

    Thanks TurbulentTime and TheDumbMoney for your great feedback.

    TurbulentTime, Starbucks may make sense -- especially now that Starbucks is testing out store-made sodas in some Seattle stores -- but I stand by my contention that PepsiCo and Coca-Cola would have no reason to buy SodaStream unless they wanted to take a $2 billion hit for the industry by shutting it down.

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