The latest rumor on the street has Sodastream (Nasdaq:SODA) being acquired by Pepsico (NYSE:PEP) for $95 per share. There are so many reasons why this rumor makes no sense. Sodastream is an industry disruptor. Why would it want to sell to a company that clearly wants it gone? The Israeli founders must be chuckling in Tel Aviv thinking about the absurdity of it all. Sodastream might be acquired someday but it likely won't be by a beverage company. Here's why.
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Go to Sodastream's homepage and the first thing you see at the very top is that Sodastream carbonators have saved 3.1 billion bottles from going into landfill since January 2009. According to Sodastream, approximately 141 billion beverage bottles and cans aren't recycled every year. The company goes on to say that one of its reusable bottles makes as many as 50,000 liters of carbonated drink saving something like 150,000 cans. That's a huge dent in the your own personal carbon footprint.
At this year's Super Bowl, Sodastream ran a tamer version of an ad it had originally produced that chided Coca-Cola (NYSE:KO) and Pepsi for their leadership position in an industry that wastes billions of bottles and cans annually doing irreparable damage to the planet. The ad that aired made no reference to Coke or Pepsi because CBS (NYSE:CBS) took the unusual step of banning the original version because it was too much of an attack on its two biggest advertisers. Who knew we lived in a repressive regime? If you're a CBS shareholder you ought to be ashamed of this incredibly un-American, anti-competitive move.
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David vs. Goliath
What we have is an underdog doing its best to get under the skin of two iconic brands whose products haven't changed much over the past 100 years. So ensconced at the top of the non-alcoholic beverage industry, Pepsi and Coke have become schoolyard bullies. Yes, Sodastream operates its main plant within the occupied Palestinian territory, but it's also providing jobs to Palestinians. It would be very easy for them to move manufacturing to any number of places including the UK. In fact, it's building a facility in Southern Israel that's 915,000 square feet, almost three times its existing space including the 164,214 square feet in the West Bank. If Palestinians don't want the work that's their prerogative. However, I wouldn't be surprised if Coke and/or Pepsi had something to do with the anti-Sodastream backlash that seems to keep rearing its ugly head. As we've seen from the Super Bowl, they're very good at crying wolf.
Most investors are probably unaware of Sodastream's background. Did you know that in its 110-year history it's been owned by Gilbey's Gin, Reckitt & Coleman, and Cadbury Schweppes? It's ironic that Cadbury Schweppes, now part of Dr. Pepper Snapple Group (NYSE:DPS), once owned the company that has single handedly been a thorn in the side of soda manufacturers large and small. It's for this reason that I find the rumor of Pepsi's interest in Sodastream so bizarre. Sometimes you buy the competition simply to eliminate them from the equation. I think it would be hard for Sodastream's board to rationalize accepting a $95 per share offer because it's hardly in the best interests of the company. Fiduciary duty isn't simply getting the best price; it's also about ensuring employees have a future with the company. A takeover by Pepsi would surely eliminate most of the jobs in Israel and elsewhere.
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A More Likely Candidate
Last November I wrote an article about Brian Kelley, the newly hired CEO of Green Mountain Coffee Roasters (Nasdaq:GMCR), who just happened to come from Coca-Cola. At the time I speculated that Green Mountain was the perfect company to buy Sodastream because their products are similar in nature, Green Mountain does a ton of business with Bed Bath & Beyond (Nasdaq:BBBY) and Sodastream to a lesser extent, and Kelley's background makes him a natural to lead the combined company. If Sodastream has any desire to tie up with a larger company, Green Mountain is a much better option although the non-recyclability of Green Mountain's K-Cup coffee pods makes it a tricky public relations situation. Perhaps a deal won't come until the recyclability issue is resolved. As for Pepsi, it's got far more interest in someone like Monster Beverage (Nasdaq:MNST), whose acquisition would give them energy drink domination.
If Pepsi buys Sodastream I'll eat my hat. I guess a lot of people feel this way because Sodastream closed up $1.89 or 2.73% on June 6, well off its intraday high of $76.04. I don't know how these rumors get started but it's good to know investors aren't always so gullible. April Fools it isn't.
At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.