PepsiCo (PEP) - Get Report on Wednesday announced it was buying energy drink maker Rockstar Energy for $3.85 billion in a move that will expand the beverage giant’s footprint in the high-demand and highly competitive energy-drink market.
The agreement includes $700 million of payments related to future tax benefits associated with the transaction, payable over up to 15 years, according to the companies.
The transaction, which is subject to typical closing conditions as well as regulatory approval, is expected to close in the first half of 2020. PepsiCo said it doesn't expect the deal to be material to its 2020 revenue or per-share earnings.
“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," said PepsiCo CEO Ramon Laguarta in a statement.
PepsiCo has had a distribution agreement with Rockstar in North America since 2009. However, until now, neither PepsiCo nor rival Coca-Cola (KO) - Get Report have had a major-brand energy drink as part of their own family of offerings.
In addition to Rockstar, PepsiCo's energy portfolio includes Mountain Dew's Kickstart, GameFuel, and AMP. Coke, which owns a stake in Monster Beverage (MNST) - Get Report and distributes its products, recently launched an energy drink in the U.S. over Monster’s objections.
Shares of PepsiCo were down 1.64% at $131.94 in premarket trading on Wednesday. Shares of Coke were down 1.01% at $53.12 while shares of Monster Beverage were down 1.71% at $65.