SodaStream Rumored To Be In Talks With Starbucks For A 10% Equity Stake


Globes is reporting that Starbucks and SodaStream are engaged in talks for an equity stake deal.

Starbucks has the ability to offer SodaStream a major beverage brand, distribution and marketing dollars.

SodaStream has the ability to offer Starbucks global distribution and repeat visits by patrons.

Shares of SodaStream International Ltd. (NASDAQ:SODA) rocketed higher today after the Globes, an Israeli news publication, reported that Starbucks (NASDAQ:SBUX) is in discussions to purchase up to 10% of the soda maker company. The following is from today's publication:

"Sources inform 'Globes' that Starbucks Corporation is in advanced talks to acquire 10% of SodaStream International Ltd. at a company value of $1.1 billion. SodaStream has a market cap of $850 million; Starbucks' offer reflects a 30% premium on the market price. Sources close to the deal say that an official announcement will be made soon. The move comes 11 years after the failure of Starbucks' Israeli franchisee Delek Group Ltd. to operate the US cafe chain in Israel. SodaStream said in response, 'There are always rumors surrounding the company. The company has not responded to rumors in the past, and it will not respond now.'"

This latest report by Globes comes only a week after Calcalist, another Israeli news publication, reported that the company was in "equity stake" discussions with one of three major beverage companies, PepsiCo (NYSE:PEP), Starbucks and Dr. Pepper Snapple Group (NYSE:DPS). Shortly after the Calcalist report surfaced in the media through Bloomberg Media, Stifel Nicolaus' analyst which covers SodaStream, Bill Duffy, dismissed the reports as nothing more than rumors and noted that any type of partnership between SodaStream and the three named beverage companies was unlikely. Today's more specific report by Globes certainly puts the analyst's feet to the fire with that declaration, but until there is an actual equity stake announcement made by either company the speculation will continue.

What could be gained by SodaStream through a partnership with the coffee giant Starbucks? On the surface, the company has commenced a venture into handcrafted carbonated drinks. Unfortunately, the media has spun this venture to be more than it is worth presently as the company only has a handful of stores with these soft drink concoctions on the menu. Starbucks is using its own soda maker which it trademarked under the name Fizzio. The soft drink test began last June in its Atlanta-based stores, with three flavors. Since that time, only incremental expansion has taken place.

Starbucks Refreshers are another line of natural energy, lightly carbonated drinks the firm has offered for a little over 18 months. According to IRI Group (subscription needed), the Refreshers product line has seen greater sell-in results than actual sell-through results. Based on these potential products, it would seem as though Starbucks needs to attach its soft drink brand venture to a well-positioned global leader in the home carbonation category.

Starbucks is well-aware that its current partnership with Keurig Green Mountain (NASDAQ:GMCR), while relevant and strengthened recently on the hot platform, will not likely offer the company global reach on the cold beverage platform with its 2015 launch of the Keurig Cold. Keurig Green Mountain's CEO Brian Kelley has already set the expectation for the Keurig Cold which will hopefully see the product line build a successful and profitable user base before venturing internationally. It has taken SodaStream approximately 4 years to achieve a 1.4% household penetration rate in the United States and approximately 2.3% in Canada. With a less practical home carbonation system and more costly than what SodaStream offers (by the bottle vs. by the glass) today, Keurig Green Mountain might find itself leveraged too heavily in its technology and render itself as a lost leader in this venture for cold, carbonated beverages made at home by the consumer. Only time will tell for sure.

It would seem as though SodaStream's main points for driving a fruitful partnership with Starbucks would come from the side of distribution and marketing. Collaboration with Starbucks would give SodaStream a distribution platform and marketing incentives, such as sales campaigns and special flavors for Starbucks customers. An additional benefit for Starbucks could be the CO2 exchange program which would invite the would-be consumer into its shops to perform a gas exchange and stay for beverage or snack of their choice. Retailers of all sorts, be them restaurateurs or department stores, are always looking for repeat visits by the consumer and the SodaStream gas exchange business provides this specific situation for the retailer.

Here's what may be missed in the whole analysis as to why a partnership between Starbucks and SodaStream could make sense. As I reported in the past, Nestle (OTCPK:NSRGY) has partnered with a current SodaStream partner, Kitchenaid. At some point, like other coffee companies, Nestle may want to move into the at-home carbonation business and who better to do it with than SodaStream which operates in some of your very own markets. Starbucks may see this speculative partnership between SodaStream and Nestle as an impediment to its future growth prospects. By striking a deal with SodaStream first, Starbucks could specify terms related to competition and distribution. It's all speculative of course.

Naturally, today's report has benefited shares of SODA while negatively affecting shares of GMCR which are down some 4.25% in mid-day trading.

Disclosure: I am long SODA. 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.