After an Israeli daily newspaper reported that SodaStream International (NASDAQ:SODA) was mulling over a partnership with a major beverage company, shares of the stock surged 8% as speculation surged over who the suitor could be. Although it seems inevitable someone would want to hook up with the company, because it's the leader in home-based soda making, SodaStream comes with baggage the Keurig Green Mountain and Coca-Cola pairing never had to contemplate, so I'm not certain lightning's about to strike twice.
Regardless of whether you think it's valid criticism or not, SodaStream's operations in an Israeli settlement in Palestine are a touchstone for controversy. Actress Scarlett Johansson's appearance in a Super Bowl ad for the DIY soda maker sparked an uproar earlier this year and led her to step down from a major anti-poverty organization that criticized her promo.
Whether you agree the West Bank settlements in Gaza are illegal or not is really beside the point, though it obviously colors your opinion of a company that operates from there or does business with one that is, and it's just that kind of polarization that will make corporate boardrooms skittish. So investors trying to read the tea leaves over which "major beverage company" is planning on partnering with SodaStream, assuming there really is one, also must calculate whether the company will want to be dragged into a debate with all the negative connotations, publicity, protests, and boycotts that will come with it.
Speculation naturally centers around PepsiCo (NASDAQ:PEP), Dr Pepper Snapple (NYSE:KDP), and Starbucks (NASDAQ:SBUX) as natural contenders, but there are compelling reasons that rule each of them out.
- Pepsi already has a bottling company in Gaza, the Yazegi Group, but it's owned by a Palestinian family. An association with SodaStream might be seen as harmful to that relationship, and though it could just as easily be seen as a mark of balance, politics and long-standing conflicts have a way of negating such clarity.
- Dr Pepper, which derives its revenues almost wholly from the U.S. soda market and could benefit from a new product innovation (the failure of its recently added Core 4 TEN line weighs heavily on its performance), might want an international presence, but likely wouldn't want to start off having to defend its decision from controversy.
- Starbucks also operates numerous stores throughout the Arab world, but several years ago was falsely accused of donating a week's worth of profits to the Israeli army, which lead to numerous protests around the world. It's doubtful it would want to stir up such a hornet's nest, and those memories, again.
Once more, regardless of whether it's right or wrong and no matter where you personally stand, corporations have to take these issues into account, and it seems to me these three major beverage companies in particular would prefer to err on the side of caution than cause a backlash of negativity by becoming a partner with SodaStream.