Pepsi to pay US$550m for 8.5% stake in fitness-drink maker Celsius

PEPSI will pay US$550 million for a stake in fitness-energy drink maker Celsius Holdings as part of a long-term strategic distribution agreement.

Pepsi is getting convertible preferred stock equating to 8.5 per cent ownership in Celsius, the companies said on Monday (Aug 1) in a statement. The soft drink giant will become the preferred distribution partner globally for Celsius and will also nominate a director to serve on its board.

Shares of Celsius jumped as much as 16 per cent in New York. The stock had been climbing recently amid analyst speculation that Pepsi could switch to Celsius after ending a distribution pact with Bang Energy. That partnership, struck in 2020, came undone amid disputes and lawsuits. Pepsi rose 1.2 per cent at 10:35 am New York time.

Celsius, founded in 2004, has seen fast growth for its low-sodium, vitamin-infused beverages that help burn calories. Pepsi also owns the popular Gatorade sports drink brand. In 2019, Pepsi acquired CytoSport, which makes Muscle Milk and Evolve protein brands.

Pepsi's stake in Celsius "may be an initial step toward full ownership," Bloomberg Intelligence analyst Kenneth Shea wrote. Together, the 2 companies can claim a greater share of the US$18 billion US energy-drink market, he said.

Celsius is at the centre of a lawsuit between Russell Simmons, co-founder of hip-hop label Def Jam Records, and former Goldman Sachs Group banker Tim Leissner, who pleaded guilty to conspiracy to commit bribery and money laundering tied to the 1MDB scandal. Simmons alleges that Leissner used shares in Celsius that were jointly owned as security for his bond. Roger Ng, Leissner's former colleague who was convicted for his role in the 1MDB crimes, joined Celsius as the firm's most senior executive in Asia in 2016 before being scrubbed from the company's website in 2018.

Last month, Pepsi raised its sales forecast for the second time this year, saying volumes have held up well despite decades-high inflation. BLOOMBERG