With an arrangement that would strengthen its commitment to energy drinks, PepsiCo will buy Rockstar Energy in a $3.85 billion deal. Pepsi has had a distribution agreement in North America with Rockstar as of 2009. The move comes as Pepsi and Coca-Cola have both been moving into the energy drinks market, CNBC reported.
PepsiCo Chairman and CEO Ramon Laguarta said, per CNBC, “As we work to be more consumer-centric and capitalize on rising demand in the functional beverage space, this highly strategic acquisition will enable us to leverage PepsiCo’s capabilities to both accelerate Rockstar’s performance and unlock our ability to expand in the category with existing brands such as Mountain Dew.”
The company said it does not foresee the deal having a material impact on earnings per share or revenue this year. The arrangement is forecasted to close in the first half of this year, as long as regulators give it the green light.
Hugh Johnston, Pepsi CFO, said the company has not been able to form new partnerships with other energy drink producers because of its distribution contract with Rockstar. If the acquisition goes through, Pepsi will be cleared to team up with other energy drink manufacturers.
Per data from Mintel, overall energy drink sales in the U.S. rose by 29.8 percent between 2013 and 2018, arriving at around $13.5 billion in sales in 2019. Energy drinks comprise 92 percent of the total energy market.
Separately, Pepsi spent $705 million to acquire Be & Cheery, a Chinese company that sells online snacks, per reports in February. The country’s snack market is said to be very profitable, seeing a 400 percent increase between 2006 and 2016, per a 2019 study from China’s Ministry of Commerce. The market is forecasted to reach a $427 billion value in 2020.