Shares of beverage company Celsius Holdings (NASDAQ: CELH) were up 11% as of 2:40 p.m. ET on Thursday after Stifel analyst Mark Astrachan suggested that industry giant PepsiCo (NASDAQ: PEP) could move to acquire the company, according to The Fly. For its part, Pepsi stock was little changed on the news, up just 1%.
Barriers to entry in the beverage space are relatively low, allowing many newcomers to enter the space. However, the big players like Pepsi and The Coca-Cola Company do have a competitive advantage when it comes to distribution. Smaller players often have to sign distribution agreements with the bigger players, which was the case for an energy-drink player that’s been gaining market share: Bang.
Bang had signed a distribution deal with Pepsi. But yesterday, Bang management announced it’s officially moving away from Pepsi as a distribution partner. For Stifel’s Astrachan, this means Pepsi might move to fill the void with a more direct competitor to Bang’s products. And that’s where Celsius Holdings comes in. For Astrachan, Pepsi could greatly increase Celsius’ distribution.
For Celsius shareholders, today’s news is about as speculative as it comes and really isn’t actionable. Astrachan acknowledged that they had “no knowledge of talks.” Therefore, I doubt they anticipated the market’s reaction to the idea.
However, it is true that Pepsi could be an ideal acquirer or partner for Celsius. The little beverage company has grown tremendously in recent years in large part due to increased distribution, which Pepsi could increase further. Moreover, Celsius’ customer base has proved loyal to the brand in recent years. And that loyal customer following could indeed make it a valuable acquisition target even if it’s still a speculative proposition at this point.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Celsius Holdings, Inc. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.