PepsiCo is set to acquire Rockstar Energy in a $3.85 billion deal. Pepsico is aiming to double down on energy drinks, hoping to turn around its struggling brand, Mountain Dew. Since 2009, Pepsi has had a distribution agreement with privately held Rockstar Energy. Pepsi CFO Hugh Johnston said that the company’s distribution contract with Rockstar Energy restricted it from innovating in energy drinks or partnering with others.
Johnston said that once the deal finalizes successfully, Pepsi can form partnerships with other energy drink makers. Stifel analyst Mark Astrachan talked about Pepsi’s interest in a distribution agreement with VPX that owned performance energy drink called Bang Energy.
Pepsi does not expect the acquisition of Rockstar Energy to impact its revenue or earnings per share in 2020. If regulators approve the deal, the deal might close in the first half of 2020. Both Pepsi as well as its archrival Coca-Cola are trying to push into energy drinks as soda consumption is declining in the USA. But Monster Energy is still the leader of energy drinks market.
According to Mintel, total energy drink and energy shot sales in the United States grew by 29.8% between 2013 and 2018. Last year, it was estimated to reach $13.5 billion in sales. Today energy drinks control 92% of the energy market. PepsiCo Chairman and CEO Ramon Laguarta said:
“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.”