PepsiCo (PEP) has received Federal Trade Commission approval for its $3.85 billion acquisition of Rockstar Energy Beverages, writes the New York Post.
According to the report, the deal will now close in the next few days.
PepsiCo has had a distribution agreement with the popular energy drink maker in North America since 2009- which barred the company from doing anything in energy outside of Rockstar.
However, this strategy was clearly not working; according to IRI in 2019 alone Rockstar volumes were down 7.9% and the brand lost -180 bps of share (volume -5.9% YTD 2020).
Importantly, the deal means that PepsiCo is now free to become more aggressive in the energy drink category as it no longer has any restrictions to expand its energy drink strategy.
As well as Rockstar, PepsiCo’s energy portfolio includes Mountain Dew’s Kickstart, GameFuel, and AMP. Now with Rockstar under its belt, PEP hopes to gain market share from rivals Monster Beverage (MNST) and Red Bull.
“Over time, we expect to capture our fair share of this fast-growing, highly profitable category and create meaningful new partnerships in the energy space” said PepsiCo CEO, Ramon Laguarta.
Meanwhile RBC Capital’s Nik Modi commented “It is no secret that PepsiCo has lagged its peers in participating in one of the fastest growing segments of the beverage industry – Energy.”
He believes the deal to acquire Rockstar clears the path for PepsiCo to create a distribution agreement with Bang Energy to further expand its energy drink portfolio.
Modi recently upgraded PEP from hold to buy, while boosting his price target from $115 to $153 (13% upside potential). Investments should bolster top-line growth over the long term, he says.
In total the stock has a Moderate Buy analyst consensus and a $144 average analyst price target (6%). Over the last three months, PEP has received 11 buy ratings vs 6 hold ratings. (See PEP stock analysis on TipRanks).
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