PepsiCo (NASDAQ:PEP) announced it will acquire Rockstar Energy in a $3.85 billion deal, doubling down on energy drinks and with an eye toward turning around its struggling Mountain Dew brand.
Pepsi has had a distribution agreement with privately held Rockstar in North America since 2009. Pepsi CFO Hugh Johnston said that the company’s distribution contract with Rockstar restricted it from innovating in energy drinks or partnering with others.
If the deal closes, Pepsi will be able to form partnerships with other energy drink makers, according to Johnston.
The food and beverage giant said that it does not expect the acquisition to have a material impact on its revenue or earnings per share in 2020.
If regulators approve the deal, it is expected to close in the first half of 2020.
Excluding Rockstar, Pepsi’s energy drink portfolio leans on Mountain Dew’s name recognition through Mountain Dew-branded Kickstart, GameFuel and AMP.
Pepsi and rival Coca-Cola (NYSE:KO) have been pushing into energy drinks as soda consumption declines in the U.S. But Monster Energy is far and away the market leader for energy drinks.
Total energy drink and energy shot sales in the United States grew by 29.8% from 2013 to 2018, reaching an estimated $13.5 billion in sales last year. Energy drinks, which represent 92% of the energy market, are entirely responsible for that growth.
PEP shares retreated $3.57, or 2.7%, early Wednesday to $130.57.
