The Realities Behind The Pepsi And SodaStream Rumors

On Thursday morning, an Israeli financial newspaper, The Calcalist, released news that PepsiCo inc (NYSE:PEP) sought to make an acquisition through Goldman Sachs of the international carbonation company SodaStream (NASDAQ:SODA). The supposed acquisition was said to be for approximately €1.53bn/£1.3bn and or 2 billion USD. Upon the release of this news, Soda Stream bubbled up over 7.7 percent higher in premarket trading than its previous close at $69.30 a share at the end of Wednesday's trading session. This news continued throughout the day until the company peaked at $75.40 a share. It was at this point that a PepsiCo spokesman reported that "the rumor is untrue" and restated the company's recent sentiments of avoiding large-scale mergers and acquisitions.

Despite affirmations that the news was false, SodaStream still remained at a 2.73% gain at the end of Thursday's trading session. However despite the deserved pullback and volatility that occurred pertaining to Soda Stream's share prices, over 30,000 calls have been exchanged, nearly quadrupling typical intraday options. Simultaneously 12,000 puts have traded hands. Following PepsiCo rumors, new rumors have now surfaced stating that beverage company Coca-Cola (NYSE:KO) is also attempting to make an acquisition of SodaStream. Neither of the stories are yet to have any form or sort of validity, however various analysts from institutions such as Barclays came out with reports supporting an acquisition if there were to be one. The Barclays report argued that with Coca-Cola possessing $9.2 Billion in cash and PepsiCo possessing $6.7 billion at hand, the two could easily make an acquisition for the rumored amount.

However the question that remains is whether or not these titans of the industry should really be investing more than 25% of their cash on hand on such an acquisition, and it seems highly unlikely that such companies would be keen to invest $2 billion on this acquisition in particular. The reason for this has to do with Soda Stream's product line. Their products are easily replicable (as is seen with the wide array of knockoffs and competitors currently in Europe). That being said, what Coca-Cola and PepsiCo would in turn be purchasing is the brand name, and for $2 billion, that would be a relatively steep price. Especially when these companies could more than easily replicate the product, as well as create a brand themselves for a far smaller investment.

As of right now, SodaStream has had a bullish performance and recovered greatly from the haircut it received in the summer of 2011. In addition, analysts estimate that the company will continue its steady rise and hit $100 a share by year end. That being said, it will be interesting to see what potential negotiations arise from the aftermath of these rumors in coming weeks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.