SodaStream International Ltd. Buyout Buzz Is Fizzing Again

SodaStream's rumored exit strategy is making the rounds again.

Rick Munarriz
Rick Munarriz
Sep 16, 2014 at 4:15PM
Consumer Goods

It wouldn't be summer without a SodaStream (NASDAQ:SODA) buyout rumor or two. Shares of the company behind the namesake beverage maker opened higher on Tuesday after Israel's TheMarker reported that an unidentified British investment fund was in talks to snap up SodaStream at $40 a share. 

Unfortunately for SodaStream investors hoping for a quick exit strategy at a modest premium, such chatter has been a lot like Bigfoot sightings: there are no shortage of reports, but at the end of the day these sightings fail to pan out.

It also doesn't help that SodaStream's home market of Israel hasn't been very successful in calling the hookup. Israel's Calcalist turned heads last summer, reporting that PepsiCo (NASDAQ:PEP) was in talks to buy SodaStream at $95 a share. It didn't happen, of course. Pepsi quickly shot down the rumor.

Sources then got back to Calcalist in April of this year, suggesting PepsiCo or another beverage giant was about to take a 10% to 16% stake in SodaStream. The report surfaced two months after PepsiCo's larger rival took a minority position in Keurig Green Mountain (UNKNOWN:GMCR.DL), pledging product support for the upcoming Keurig Cold platform. That was another deal that failed to materialize.

This week's chatter isn't even the first time the $40 price has been bandied about. Sources told Bloomberg in July that an undisclosed private equity firm was in talks to take SodaStream out for a similar $840 million deal.

One can always argue that where there's smoke there's fire. We're now 15 months into a relentless stream of chatty sources who have ultimately gotten it wrong, but just the fact that the buzz continues makes it seem as if SodaStream is receptive to a legitimate wedding proposal. It can entertain gentlemen callers from its front porch as they all sip carbonated lemonade and talk about the glory days when SodaStream thought it could make it on its own.

The fall and fall of SodaStream
Things have been rough for the company that remains the undisputed leader in home-based carbonation. SodaStream was a huge success through Europe when it made its stateside push shortly before the company's 2010 IPO. Given the high consumption rates of soft drinks in the U.S. (second only to Mexico on a per-capita basis), SodaStream's American invasion should have been a slam dunk. 

Things seemed to be going well until late last year when it stuffed distributors with too many soda makers that went unsold over the holidays. It's been a downhill slide of decelerating global sales growth and contracting margins ever since. 

Along the way there has been growing activism regarding its flagship factory, which is situated in the disputed West Bank. Earlier this month, SodaStream CEO Daniel Birnbaum told TheMarker -- yes, the same Israeli business publication behind this week's chatter -- that a decision would be made within the next two months on whether to keep the plant open. The company is building a larger factory in Europe, and it might decide that the controversy in the West Bank settlement isn't worth the production. 

It's not just the polarizing debate about the factory that is keeping SodaStream down. The company is just not living up to its initial growth stock darling status in its more recent financials. Stateside sales have been declining, dragging overall revenue growth to just 7% in its latest quarter. Given the inventory struggles that SodaStream has faced since late last year in the U.S., margins have been decimated to the point at which earnings plunged 29% during the second quarter. Soda maker sales have been declining, even though the higher-volume carbonator refills and syrup bottles are still inching in the right direction. 

SodaStream had targeted 15% top-line growth this year, but lowered its outlook to a mere 5% after this summer's disappointing quarterly report. When you factor in the upcoming launch of the Keurig Cold beverage maker that has the financial backing of Coca-Cola and access to its branded flavors, it wouldn't be a surprise to see SodaStream eye a sugar daddy. Speculators have been burned before, but there's a case mounting for the privatization of the once-sudsy SodaStream.