On Monday, Pepsi (NASDAQ:PEP) announced plans to acquire seltzer machine company SodaStream (NASDAQ:SODA) for a tidy $3.2 billion. With sugary drinks and snacks losing market share every day, this move could bring a little diversity into the soda giant...or it could be a desperate, failed attempt to do so.
In this clip from MarketFoolery, host Chris Hill and analyst Jason Moser take a look at the deal, what it could mean for Pepsi's long-term future, why the timing wasn't the best it could have been, and why this very well may end up in a goodwill writedown for Pepsi a few years down the line.
A full transcript follows the video.
This video was recorded on Aug. 20, 2018.
Chris Hill: We're starting with the news, of course, that Pepsi is buying SodaStream for the cool sum of $3.2 billion. Pepsi is paying $144 a share. It has been a really good year for SodaStream's shareholders. It started the year at just under $70 a share.
Jason Moser: That's a lot of seltzer. SodaStream has had a very interesting, let's just look at the last five years. In the last five years, the stock has been on a bit of a roller coaster. Recently, it's certainly made a comeback here. I think generally speaking, you have to like the trend this plays into for Pepsi because of the headwinds soda faces. Also, I think this fight against waste, excess plastic bottles, whatnot, this is really what SodaStream is battling. It gives you that device in your home that you can make your seltzer. And they did really focus on being able to make your own soda for a time. But since soda has more or less become a pariah, now they're focused on just saying, "Hey, you can still make seltzers and flavored waters and whatnot." I think, given Indra Nooyi's global take on things, I think she likes this kind of message. Fighting obesity and soda consumption and fighting waste with plastic bottles.
I do kind of feel like... I don't know. They're buying SodaStream at the very top. I can't help but feel like maybe, a few years from now, we're going to see a big goodwill write down on Pepsi's part.
Hill: Oh, really?!
Moser: I mean, I feel like they're probably going to have to write down some of this. This is not a cheap deal, by any means. They really are getting SodaStream at the peak of a recovery. Any challenges they may have faced in the coming years, I think the stock has gotten a little bit ahead of itself, when you consider that it really is a European play still. It's a play on Western Europe. Not as much on the U.S.
Hill: It will be interesting to see if there's a write down. I had a similar thought. I like the move, Indra Nooyi going out with a heck of a mic drop, wrapping up her 12 years as CEO. I like the deal. The thing that I questioned was not so much, "Wow, they're buying this at SodaStream's top." I mean, yes, that is the truth. But I also looked at it as, "Boy, it's not like they just started working with SodaStream." That's why, I think, if you're a Pepsi shareholder, even if you like this deal, you do have to ask the question, what could have been. They've been working with SodaStream for years, and certainly, if they had looked to pull the trigger on this deal even a year ago, you have to figure they're paying at least a billion dollars less. So, that's the only thing. I don't know. I guess we can bet a cup of coffee on whether or not there's a write down. I like the move, but considering how long Pepsi has worked with SodaStream, that's the thing where you just go, "Boy, if they had bought this ... " they could have gotten this thing for a billion dollars maybe two years ago.
Moser: Yeah, it sure feels that way. I mean, we love these razor and blade models. You have a company that's selling a device or a contraption, and then you have to keep on refilling that device or contraption with something that is specific to that actual device. I look at the Keurig Green Mountain machine vs. the SodaStream. There are some similarities there. Certainly, we've seen how successful the Keurig has been. I think it's a little bit of an easier device to use, the Keurig. I think the Keurig probably lives a longer life on most countertops here, at least domestically. I think the reason is, it's the device and then the pod, right? You're not really having to make another leap there. With the SodaStream, it's the device and it's the gas cartridge. And then you have to either add your flavoring, or you just get your water. But what I found in having used the SodaStream that we have here at work, which incidentally just sits here and collects dust now -- it doesn't really seem to carbonate as well as, perhaps, some of the seltzers you might buy in the store. I felt like, if we bought a SodaStream machine, it would ultimately just collect dust. And I love seltzer. I mean, I drink a lot of it every day.
Again, this is a play primarily on Western Europe. We've seen that domestically here, SodaStream, at least at this point, isn't gaining as much traction. That's not to say that it won't down the road. Certainly, Pepsi has a massive distribution network where they could pull some more levers and possibly get this thing into more homes and cut prices and figure out new ways to monetize it. I think ultimately, it's something that fits into their model very well. It just, wow, they're paying a lot for it.
The upside there is, it's all cash on the balance sheet. They had the money to do it. It's just going to be an acquisition they make, and then Nooyi gets to ride off into the sunset saying, "Hey, guys, do well. See you soon. Bye."
Hill: [laughs] "Go ahead and knock that out."
Chris Hill has no position in any of the stocks mentioned. Jason Moser has no position in any of the stocks mentioned. The Motley Fool owns shares of SodaStream. The Motley Fool has a disclosure policy.