Source: https://www.wsj.com/
By Cara Lombardo
March 11, 2020
PepsiCo Inc. PEP -3.27% agreed to buy Rockstar Energy Beverages, in a move to expand the beverage giant’s presence in the fast-growing energy-drink category.
PepsiCo is to pay $3.85 billion for closely held Rockstar, the companies said Wednesday, confirming an earlier Wall Street Journal report.
PepsiCo and rivals including Coca-Cola Co. have been working for years to shift their beverage sales away from sugary sodas and toward lower-calorie offerings including water and tea as well as coffee drinks.
Energy drinks are a weak spot for both Coca-Cola and PepsiCo, and neither owns a major brand in the category. Coke, which owns a stake in Monster Beverage Corp. and distributes its products, recently launched an energy drink in the U.S. over Monster Beverage’s objections.
Rockstar, which PepsiCo already distributes, is one of a handful of major energy-drink brands. The entrepreneur Russell Weiner founded the company in 2001, when Rockstar was the first energy drink to come in now-ubiquitous 16-ounce cans. The number of energy-drink offerings has since exploded and begun edging out sodas for space in store coolers. Austria-based Red Bull GmbH and Monster Beverage dominate the market, which in addition to Rockstar counts another brand, Bang, as a significant player.
In addition to traditional energy drinks with loud labels and flavors including Killer Black Cherry, Rockstar makes several sugar-free and low-calorie energy drinks as well as an organic version and others made with fruit juice.
The deal marks the first big move since Ramon Laguarta took over as PepsiCo’s chief executive from Indra Nooyi in 2018. The Purchase, N.Y., company’s last multibillion-dollar deal was the acquisition of SodaStream, the seltzer-machine maker. Mr. Laguarta was deeply involved in that deal, which came in the final months of Ms. Nooyi’s tenure.
While PepsiCo has distributed Rockstar drinks in North America since 2009, the existing agreement limits what it can do with other external brands and with those it sells under its own Mountain Dew label.
Once the deal closes, PepsiCo could do more with its Mountain Dew brands, including Kickstart and Game Fuel, and potentially distribute other energy-drink brands. It would also be able to expand distribution and product offerings under the Rockstar brand.
Buying Rockstar “gives us the ability to play in energy from soup to nuts,” PepsiCo Chief Financial Officer Hugh Johnston said in an interview.
It should also enable the company to sidestep any legal tussle like the one that ensnared Coca-Cola. PepsiCo’s rival has for years held a significant stake in Monster Beverage. Coca-Cola last year won an arbitration claim that allows it to expand sales of its own Coke-branded energy drinks after Monster Beverage tried to stop the rollout.
When Mr. Laguarta was asked about PepsiCo’s energy-drink strategy on its earnings call last month, he pointed to success in a partnership with Starbucks Corp. that allows PepsiCo to sell ready-to-drink coffee beverages and said it plans to do “a better job with Rockstar,” without further elaborating.