By Beth Kowitt
August 20, 2018

PepsiCo has agreed to acquire countertop carbonated water machine maker SodaStream for $3.2 billion—the snacking and beverage giant’s latest move to add healthier products to its portfolio and push a more environmentally friendly agenda.

The deal, for $144 per share in cash, is a 32% premium to the 30-day volume weighted average share price of SodaStream, which earlier this month reported what it said was its “most successful quarter” ever and its ninth consecutive quarter of double-digit revenue growth.

The deal is expected to close by January 2019, pending approval by regulators and SodaStream shareholders. SodaStream will be run as an independent division, and its current management team will remain intact—a setup both parties said was essential in order for the Israeli company to maintain its entrepreneurial culture.

For PepsiCo, SodaStream provides an entree into what PepsiCo CFO Hugh Johnston calls “in-home beverage creation,” a new market for the soda seller.

“We really do see the two companies as an ideal match in a lot of ways,” Johnston told Fortune.

SodaStream aligns with PepsiCo’s attempts to expand its offerings beyond soda and salty snacks as it tries to cater to a growing consumer segment that claims to want products that are better for their bodies and the planet. In February, PepsiCo launched bottled sparkling water brand Bubly, and last week the company formally announced that it was creating a new operating entity, called The Hive, in order to focus on developing emerging brands.

In July, PepsiCo reported sales in its North American beverage business that had declined for four quarters in a row.

SodaStream CEO Daniel Birnbaum told Fortune that his company plays into current “mega-trends,” such as consumers looking for ways to reduce their carbon footprints. The SodaStream machine, which can sit on users’ countertops, works by adding carbon dioxide to reusable bottles that consumers fill with tap water.

Birnbaum previously has been critical of PepsiCo’s push into bottled water, calling premium water brands “the biggest marketing and advertising scam of all time” in a 2017 interview with Fortune. In an interview on Sunday, he applauded the “very bottle-oriented” company for being “bold enough to go out of the bottle.” Earlier this month, outgoing CEO Indra Nooyi announced that the company is leading an industry-wide initiative to reverse the declines in household recycling in the U.S.

SodaStream’s business went through a challenging period about five years ago, leading the company to make a strategic shift to identify itself as a sparkling water brand rather than a soda alternative. Birnbaum says that now 90% of all SodaStream liters consumed are plain sparkling water and that the company is currently the largest sparkling water brand in the world by volume.

The deal gives SodaStream access to PepsiCo’s massive resources and distribution network; SodaStream is in 46 countries versus more than 200 for PepsiCo. Birnbaum pointed to the German market as a case where the company could use PepsiCo’s expertise: The majority of all water consumed in the country is sparkling, he says, but SodaStream has only 8% penetration. “It’s an example of low-hanging fruit,” he says.

SodaStream and PepsiCo have had conversations at various times over the years, including an unsuccessful 2015 partnership in which consumers could buy caps filled with PepsiCo’s soda flavoring to add to their carbonated water. But Birnbaum says putting Pepsi products on the SodaStream platform isn’t part of the plan going forward. “We’re going to focus Sodastream on sparkling water,” he says.

The SodaStream-PepsiCo tie-up will likely be one of the last deals under the tenure of Nooyi, who announced earlier this month that she would retire as CEO in October. On her watch, PepsiCo has mostly sat out of the flurry of deals in the sector, as its Big Food brethren have attempted to bolster their portfolios by buying upstart brands and consolidating. Earlier this year, for example, Keurig Green Mountain said it would buy Dr Pepper Snapple.

Johnston says the SodaStream deal should not be seen as a sign that the company is about to go on an acquisition tear.

“I would view this as a terrific opportunity unto itself,” he says, “but I wouldn’t view it as a change of philosophy at all.”

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