New York — PepsiCo agreed to buy energy-drink maker Rockstar for $3.85bn as the US cool drink and snacks giant seeks to expand its beverage range amid waning appetite for traditional cool drinks.

The deal is one of the first strategic moves by PepsiCo CEO Ramon Laguarta since he took over from Indra Nooyi in 2018. Pepsi and Las Vegas-based Rockstar have had a distribution agreement in North America since 2009.

Pepsi and rival Coca-Cola have been racing to expand their line-ups of faster-growing drinks as consumers shun sugary beverages. Pepsi’s energy portfolio already includes Mountain Dew’s Kickstart, GameFuel and AMP while Coca-Cola announced Coke Energy in 2019, adding to the stake it owns in Monster Beverage, a top-selling brand. Coke also acquired UK chain Costa Coffee in 2018 and has debuted a line of spirit mixers.

“Over time, we expect to capture our fair share of this fast-growing, highly profitable category and create meaningful new partnerships in the energy space,” Laguarta said on Wednesday  in a statement confirming the deal. Dow Jones reported earlier that Pepsi was nearing a deal for Rockstar, citing unidentified people familiar with the situation.

High caffeine

Energy drinks, known for their high sugar and caffeine content, have been a relative weak spot for both Coke and Pepsi. Austria’s Red Bull dominates the category, selling about 7.5-billion cans annually. About 700-million of those are sold in the US, compared with just more than 70-million cans of Rockstar.

Through sponsorships, the energy beverage industry is closely associated with extreme sports, which has been a boon for brands such as Monster. In February, the company said its full-year sales rose 10%.

Rockstar was founded by the entrepreneur Russell Weiner in 2001 and is the creator of the world’s first 450g energy drink.

Pepsi also entered into an agreement which will provide about $700m  of payments related to future tax benefits associated with the transaction, payable over up to 15 years, it said in the statement. The company does not foresee the deal affecting revenue or earnings per share in 2020. The transaction is expected to close in the first half of 2020.

Pepsi shares were down about 2.6% in New York, amid broader declines in US stock indexes.


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