As The Coca-Cola Company (KO) and PepsiCo, Inc. (PEP) Circle Sodastream International Ltd (SODA), What’s at Stake?

Potential Synergies and Complications

Sodastream International Ltd (NASDAQ:SODA) has always been a controversial stock. While some analysts argue that the company sells a “fad” product that lacks the power to disrupt the soft-drink market on a sustained basis, other argue that SodaStream’s home-carbonation system is the wave of the future. Unfortunately, each side clings strongly to its opinions, and there is little in the way of constructive debate on the subject.

In theory, a merger between one of the “Big Soda” companies and SodaStream would create a powerful new market for “home-brewed” soft drinks. By selling syrups directly to consumers with SodaStream’s home-carbonation devices, The Coca-Cola Company (NYSE:KO) or Pepsi might plausibly create a line of “craft sodas” that cater to high-end consumers or health-conscious parents who have stopped buying soda products for their kids.

At the same time, such a move might run the risk of cannibalizing revenues from these companies’ extremely lucrative lines of sugary and diet-labeled soft drinks. As such, it would require a careful risk-reward calculation. Rank-and-file investors would not be privy to such a calculation, and it is not certain whether the analysis would be accurate in the first place. It may be better to take PepsiCo, Inc. (NYSE:PEP)’s denials at face value.

Possible Plays

This does not mean that investors should discount SodaStream’s attractiveness as a buyout target. In fact, the company’s technology could be attractive to a wide range of consumer-product firms as well as the bottling subsidiaries with which Pepsi and Coke maintain close relationships. Investors who believe that SodaStream is not just a fad would do well to look at the stock at these levels. Regardless of the recent buyout rumors, this company looks to reward short-term traders with its volatility and long-term traders with its potential for eye-popping growth.

Mike Thiessen has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, PepsiCo, and SodaStream. The Motley Fool owns shares of PepsiCo and SodaStream. Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article As Coke and Pepsi Circle Sodastream, What’s at Stake for Regular Investors? originally appeared on and is written by Mike Thiessen.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.