Both PepsiCo and Dr. Pepper Snapple Group have announced major acquisitions with the goal of diversifying their portfolios.
Dr. Pepper Snapple
Dr. Pepper Snapple Group announced that it has agreed to acquire Bai Brands LLC, a better-for-you brand portfolio of premium antioxidant-infused beverages including carbonated flavored water, coconut water, and ready to drink teas for $1.7 billion in cash.
The structure of the deal provides Dr. Pepper Snapple with a tax benefit of $400 million on a net present value basis.
New Jersey-based Bai will operate within Dr. Pepper Snapple’s Packaged Beverages unit and is projected to generate $425 million in sales in 2017, and is expected to add $132 million to Dr. Pepper Snapple’s sales next year. However, it is also expected to lower the group’s earnings by about three percent due to expenses related to the transaction and higher marketing overhead.
“Over the past seven years, Bai has proven to be an agent of change in a marketplace that is rapidly evolving,” said Ben Weiss, who will continue to head up Bai. “We’ve worked tirelessly to challenge the notion that better-for-you beverages can’t taste good. On our journey, we found a strong ally in DPS, an ally who embraced our mission to change the way the world drinks. Now, it only makes sense to continue our quest together.”
PepsiCo
PepsiCo has also announced a definitive agreement to acquire KeVita– a leading North American maker of fermented probiotic and kombucha beverages for an undisclosed amount, but Fortune reports that the deal was in the neighborhood of $200 million.
Founded in 2009, KeVita produces three product lines consisting of two dozen flavors of Sparkling Probiotic Drink, Master Brew Kombucha, and Apple Cider Vinegar Tonic. All products are certified organic, non-GMO, gluten-free, vegan, and contain live probiotics in every bottle.
“Under the leadership of CEO Bill Moses, KeVita has become an innovative, high–growth brand that is transforming the functional beverage space,” said Chris Lansing, general manager and vice president, PepsiCo Premium Nutrition.
Behind the Deals
The carbonated beverage sector has been facing increasing headwinds in recent years as Beverage Digest concludes that U.S. demand declined over the past 30-years, reports Reuters.
Not only have health conscious consumers been turning away from soft drinks, but several cities across the U.S. including Chicago and San Francisco, voted to approve taxes on high-sugar beverages as a means to mitigate health issued linked to their consumption.
In response, soft drink giants have been investing in functional, bolt-on acquisitions that offer diversification into the health and wellness aisle, while also providing a hedge against new tax laws and catering to changing consumer tastes.
“This is a continued play on health and wellness,” Adam Fleck of Morningstar told Reuters. “The noncarbonated beverage space continues to grow at the expense of the carbonated sodas that Pepsi and Dr. Pepper are known for.”
In the case of the PepsiCo – the addition of KeVita to its lineup will help the company meet its pledge that two-thirds of its global beverage portfolio will contain less than 100 calories from added sugar by 2025.
KeVita will continue to operate independently within PepsiCo’s Premium Nutrition business alongside juice and smoothie maker, Naked Juice and sparkling juice company, IZZE. The company’s co-founders, Bill Moses and Chakra Earthsong will remain in place to act as ambassadors for the brand, according to Fortune.
For Dr. Pepper Snapple, this is the group’s first key acquisition since it was spun out of Cadbury Schweppes eight years ago according to Reuters. But the move puts it in league with its key rivals including Coca Cola Co. which acquired organic ready-to-drink tea maker, Honest Tea, organic juice company, Suja, and coconut water company, Zico Coconut Water.
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Lynda Kiernan