PepsiCo announced today a USD550 million investment in energy and fitness drink maker Celsius Holdings as part of a long-term strategic distribution arrangement.
Celsius was founded in 2005 and produces “healthy” energy drinks that include ingredients such as ginger and green tea and no artificial preservatives or sugar. Especially during the pandemic the company has reported explosive growth. In the first quarter this year, its U.S. revenue soared 217% to USD 123.5 million.
The distribution agreement initially transitions Celsius' current U.S. distribution to PepsiCo. As part of the transaction, PepsiCo will also make an investment in Celsius in support of its growth agenda and will nominate a director to serve on Celsius' Board of Directors.
The long-term U.S. distribution agreement is effective on August 1, 2022 and, subject to certain exceptions, includes retail and food service channels. PepsiCo will also become the preferred distribution partner globally for Celsius.
As part of the transaction, PepsiCo will make a net cash investment of USD 550 million to Celsius in exchange for convertible preferred stock. Shares underlying the transaction were priced at USD 75 per share, or approximately 7.33 million shares, which equates to an estimated 8.5% ownership in Celsius on an as-converted basis. The preferred shares are entitled to a 5% annual dividend.
PepsiCo entered the energy drink market in March 2020 by buying legacy energy drink maker Rockstar for USD 3.85 billion. One month later, the company announced an exclusive alliance with Vital Pharmaceuticals Inc. (VPX), the manufacturer of Bang Energy drinks to distribute the portfolio of Bang Energy beverages in the United States. (inside.beer, 28.4.2020) However, this agreement did not work as expected and led to a legal battle that ended in Pepsi’s favor. One and a half months ago, Bang announced that all disputes with PepsiCo had been fully settled and resolved and Bang would transition the distribution to Bang Energy’s new DSD partners. This cleared the path for the new agreement with Celsius which has recently overtaken Rockstar as the fourth most popular energy drink in the U.S.
"We are extremely pleased to partner with Celsius and excited about the opportunity for our two organizations to drive growth and innovation in the energy beverage category," said Kirk Tanner, CEO, PepsiCo Beverages North America. "The Celsius brand's growing momentum coupled with the strength of PepsiCo's portfolio and go-to-market capabilities create a combination we believe will be very compelling and valuable to retailers and consumers. We are looking forward to seeing the impact these two outstanding organizations can make together to more fully capture energy occasions."
Celsius President, Chairman and CEO, John Fieldly, commented, "I would first like to thank our employees and partners who have helped facilitate our rapid growth. We believe the opportunity to partner with a global best-in-class distributor provides Celsius with significant near-term additional shelf space in both existing retailers as well as new expansion within the independent retailers that represent a significant portion of the U.S. convenience and gas channel where approximately 70% of energy drinks are sold. It also provides a strategic partnership that is expected to accelerate growth for both companies globally. In addition, this partnership will drive efficiencies allowing our teams to consolidate sales, marketing, and distribution efforts with associated cost benefits, which we expect to recognize once the initial transition is completed. We look forward to partnering with PepsiCo and maximizing the opportunities we see ahead for Celsius and our shareholders."
