PepsiCo Buys $550 Million Stake In Energy Drink Firm Celsius

PepsiCo announced on August 1, 2022, a “net cash investment” worth $550 million in energy drink maker Celsius. The deal was part of a long-term distribution agreement with the smaller company. Find out what will happen when PepsiCo buys Celsius. 

Shares of Celsius closed up 11 percent, bringing its total market value to $7.45 billion.

Celsius expects to increase shelf space in existing retailers and grow into independent stores like gas stations. Based on the joint statement, Pepsi will be assisting with the distribution since August 1.

Meanwhile, Pepsi’s investment in Celsius is equivalent to a minority stake of approximately 8.5 percent in the company. 

Celsius Holdings, Inc. was founded in April 2004 as a global company with CELSIUS® as its flagship brand. The company has reported tremendous growth for its energy drinks during the pandemic. Celsius’ U.S. revenue increased by 217 percent in the first quarter to $123.5 million.

Celsius advertises its beverages as “healthy” energy drinks that target younger consumers with active lifestyles. Their beverage ingredients include ginger and green tea, with no artificial preservatives or sugar in their beverages. Apart from that, Celsius also claims that the products have thermogenic properties. It means drinking them can help speed up metabolism and burn calories.

For Pepsi, the deal helps strengthen its energy drinks business. The category is the fastest growing beverage segment outside of alcohol. Pepsi has aimed to expand on energy in recent years as soda consumption weakens. In early 2020, Pepsi bought legacy energy drink maker Rockstar for $3.85 billion, intending to stimulate its sales. However, Celsius recently overtook the brand as the fourth most popular energy drink in the U.S.

Pepsi had previously bet on another fast-growing newcomer, Vital Pharmaceuticals’ Bang Energy, via an exclusive distribution agreement. Sadly, the relationship quickly soured, which resulted in a legal conflict that ended in Pepsi’s favor. Because of this, the two companies parted ways earlier than expected. The battle fueled speculation that Pepsi would try whether to buy Monster Beverage or Celsius. Both plans were to expand its market share in the energy drink category.

“The Celsius brand’s growing momentum and the strength of PepsiCo’s portfolio create a combination that will be very compelling and helpful to retailers and consumers,” Kirk Tanner, the CEO of PepsiCo’s beverage business in North America, said.

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John Fieldly, Celsius’ president, chairman, and CEO, said that they believe the opportunity to partner with a global distributor provides Celsius with significant near-term additional shelf space in both existing retailers. Additionally, we target new expansion within the independent retailers representing a substantial portion of the U.S. convenience and gas channels, where approximately 70 percent of energy drinks are sold. Likewise, it promotes a strategic partnership toward global success for both companies.  

Once the transaction is completed, this deal will fuel efficiency and cost-effectiveness in sales, marketing, and distribution. 

PepsiCo buys Celsius. So, What’s Next?

In 2021, Celsius generated revenue of $104.3 million, almost three times the $35.7 million earned in 2020. Specifically, domestic revenue was $95.9 million. The company’s net income reached $3.9m in 2021, down from $8.5m a year earlier.

While the 2020 operating income was $7.9 million, that metric swung to $4.1 worth of losses in the following year. It was attributed to the increase in the cost of sales, selling, marketing, and administrative expenses.

Celsius provided an EBITDA (earnings before interest, taxes, depreciation, and amortization) figure of $33.6m for 2021, more than double the $16m reported for 2020.

The deal with PepsiCo forecasts shares priced at $75 per share, or approximately 7.33 million shares. This translates to an estimated stake in Celsius of 8.5% “on an as-converted basis.” The preferred shares are entitled to a 5% annual dividend.

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