PepsiCo buys Israel’s SodaStream for $3.2 billion as sparkling water gains appeal

Show Caption Hide Caption PepsiCo is joining the sparkling water wars The company is offering a new drink called Bubly.

PepsiCo announced Monday that it is buying personal beverage making device company SodaStream for $3.2 billion.

The deal comes as beverage and snack giant PepsiCo continues to seek ways to diversify its business away from sugary sodas. Israel-based SodaStream has capitalized on rising interest in sparkling water.

SodaStream sells a countertop device that enables consumers to quickly turn tap water into carbonated water. Flavor can be added with special drops and syrups.

The acquisition marks one of the last big moves by CEO and Chairman Indra Nooyi, who recently announced her plans to step down from her CEO post in October.

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"PepsiCo and SodaStream are an inspired match," Nooyi said in a statement. It's "an extraordinary company that is offering consumers the ability to make great-tasting beverages while reducing the amount of waste generated."

PepsiCo will pay $144 per share for SodaStream stock, which had closed at $129.85 on Friday.

The company said it "will position SodaStream for further expansion and breakthrough innovation."

That makes sense to BMO Capital Markets analyst Amit Sharma.

"The transaction is likely the first of several other initiatives to re-orient PepsiCo's beverage portfolio towards healthier, on-trend categories," he wrote in a note to investors. "While SodaStream products are sold through 80,000-plus retail locations in 45 countries, it has significant geographic expansion opportunities, as household penetration in some large developed markets is still under 2% -- e.g., U.S. 1.4%, Japan 0.6%, U.K. 0.5%."

PepsiCo launched Bubly, its line of flavored sparkling water, in February and the SodaStream acquisition will extend the company's reach in this beverage category.

In 2016, for the first time, Americans bought more bottled water than carbonated sodas, according to the research and consulting company Beverage Marketing -- 12.8 billion gallons sold versus 12.4 billion gallons. The trend continued into 2017 with 13.7 billion gallons of bottled water compared to 12.3 billions gallons of soda.

"The deal diversifies PepsiCo's product and channel mix by giving the company a foothold in the in-home beverage market," wrote Wells Fargo Securities analyst Bonnie Herzog. "PepsiCo's large global footprint will likely provide SodaStream with

access to new markets and stepped-up marketing/research-and-development spend.

PepsiCo shares were largely unchanged in pre-market trading. SodaStream shares rose 10.1 percent to $143.02.

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