PepsiCo has agreed to buy Rockstar Energy for $3.85 billion. The deal, announced today, gives PepsiCo full control of a brand it has distributed since 2009 and removes the handcuffs on PepsiCo’s ability to innovate within the growing energy category.
“With the agreement we had, there were some constrains on what we could do within the energy category,” PepsiCo Chief Financial Officer Hugh Johnston said in an interview. “We own that contract now, so we’re free to operate in the best interest of consumers and customers. By doing that, we think there’s a lot of untapped growth potential out there.”
Deal Rationale. According to Johnston, key benefits for the deal include:
1) Accelerating Rockstar’s growth in the US, where it is strongest on the West Coast and underdeveloped on the East Coast; and internationally, where the brand has limited distribution in more than 30 countries. Johnston said PepsiCo intends to invest in advertising, marketing, innovation and execution for Rockstar.
2) The ability to leverage Mtn Dew more broadly in the energy category. As master distributor for Rockstar, PepsiCo was unable to boost caffeine levels for Mtn Dew and was limited in the use of packaging to position Mtn Dew more broadly within the energy category. Outside of Mtn Dew Amp, Mtn Dew products also couldn’t be merchandised behind the energy door at retail. “Bringing Mtn Dew back towards those energy credentials gives us a lot of opportunity to accelerate it,” Johnston said. (Coke launched an energy soda last year that was the subject of arbitration with partner Monster Energy.)
3) “Opens the door for potential further energy partnerships,” said Johnston, who declined to elaborate. (He also declined to discuss rumors PepsiCo may be interested in a distribution deal with Bang Energy. Either way, PepsiCo now has more room to play in the fast-growing performance energy segment.)
The Rockstar acquisition “gives us freedom to operate in a much broader way and in a much more aggressive way in that energy need state,” Johnston added. “Given the way lifestyles are right now, we think energy is going to continue to be a growth category for a long, long time.”
Transaction Details. The deal will require regulatory approval and is expected to close during the first half of this year. The transaction will not be material to 2020 revenue or earnings, the company said. The deal includes about $700 million in payments “related to future tax benefits associated with the transaction, payable over up to 15 years.” King & Spalding, the Atlanta-based law firm that has handled everything from refranchising to natural sweetener patents for Coca-Cola, represented Rockstar in the deal. Centerview Partners was financial advisor to PepsiCo, and Goldman Sachs advised Rockstar on the transaction.
Performance. Rockstar, founded in 2001, was distributed by the Coca-Cola system before it was replaced by Monster Energy, opening the door for PepsiCo. Last year, the brand lost almost -2.0 points of volume share and -1.0 point of dollar share and is now smaller than performance energy brand Bang on both measures.
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