Following the company’s announcement that it had signed a contract with PepsiCo (NYSE:PEP) for both a long-term distribution arrangement and a sizable investment in the company, Celsius Holdings’ (NASDAQ:CELH) shares rose substantially on Monday.
Celsius & PepsiCo Partnership to Increase Efficiencies
PepsiCo will appoint a director to serve on Celsius’ Board of Directors, and PepsiCo will take over management of the energy drink company’s U.S. distribution. In addition, Pepsi would provide $550 million in net cash to Celsius in exchange for convertible preferred stock, which, as converted, would give Pepsi an estimated 8.5% ownership stake in Celsius. According to the agreement, a 5% yearly dividend is due on those shares valued at $75 each.
“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,” Celsius CEO John Fieldly said.
He added that this partnership will drive efficiencies allowing their teams to consolidate sales, marketing, and distribution efforts with associated cost benefits, which they expect to recognize once the initial transition is completed.
On August 1, 2022, the long-term U.S. distribution deal goes into effect. Retail and food service channels are included, subject to some limitations. In addition, PepsiCo becomes Celsius’s top international distribution partner.
Celsius Shares Are Soaring
Shortly after the market opening on Monday, Celsius’s shares increased by more than 14%. The increase continues a gain of more than 50% for the stock. Shares have almost doubled in value in the past six months.
Mark Astrachan, a Stifel analyst, had previously proposed Celsius as a takeover candidate for Pepsi. He raised its price target on Celsius to $93.00 from $77.00 after lifting estimates. In June, Astrachan argued that the end of PepsiCo’s distribution deal with Bang Energy might prompt the beverage juggernaut to seize chances like Celsius.
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