PepsiCo says SodaStream to stay local, as buzz builds around $3.2b ‘entrance’
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'We are not talking here about an exit. It's an entrance'

PepsiCo says SodaStream to stay local, as buzz builds around $3.2b ‘entrance’

Israeli soda maker will remain a separate unit within PepsiCo, with Daniel Birnbaum remaining at helm and operations staying in Israel for 15 years or ‘forever’

SodaStream CEO Daniel Birnbaum (l) and PepsiCo’s CEO Ramon Laguarta at the SodaStream factory in Israel’s Negev Desert next to the city of Rahat on August 20, 2018. (Eliran Avital)
SodaStream CEO Daniel Birnbaum (l) and PepsiCo’s CEO Ramon Laguarta at the SodaStream factory in Israel’s Negev Desert next to the city of Rahat on August 20, 2018. (Eliran Avital)

At the start of a press conference held by SodaStream and PepsiCo in Tel Aviv on Monday, after the announcement of the US giant’s $3.2 billion cash acquisition of the Israeli home seltzer machine company, SodaStream’s CEO said he wanted to begin with a statement in Hebrew.

Daniel Birnbaum recounted the story of the Exodus, a ship that carried Jewish immigrants, most of whom were Holocaust survivors, from France to British Mandatory Palestine in 1947. They were sent back to Europe and some were killed after British soldiers boarded the ship, stopping their entry to Israel.

Twenty-two years later, Birnbaum’s father, Ervin, a Holocaust survivor from Czechoslovakia and one of the ship’s passengers, immigrated to Israel and settled in the Negev, in Sde Boker, with his wife.

“Who would have believed, father,” Birnbaum said, visibly moved, as he looked across the hall past the scribbling journalists to his two parents, proudly sitting in the audience, “that after the Holocaust and all that you went through, after you lost 30 members of your family, you got to enjoy this moment,” in which the “ashes of the Holocaust have been transformed into a moment of glory and pride” for his son and for Israel.

Ervin (right) and Hadassah Birnbaum at SodaStream’s press conference in Tel Aviv, August 20, 2018 (Shoshanna Solomon/Times of Israel)

Birnbaum sat onstage with PepsiCo’s newly appointed CEO Ramon Laguarta, who flew in to Israel to sign the accord, which will see SodaStream become a wholly owned subsidiary of PepsiCo and delist from the Nasdaq and Tel Aviv exchanges.

“We are not talking here about an exit,” Birnbaum said. “We are talking here about an entrance, an investment, of a giant international firm, the biggest food and drinks company in America and the second biggest in the world, that is planting a flag here and is showing trust in the economy of Israel. ”

Just as Intel Corp. said about Israel’s Mobileye, which it  acquired last year, SodaStream will remain an independent unit within PepsiCo, with its headquarters in Israel and maintaining its own brand, led by Birnbaum, Laguarta said. The US giant does not plan to lay off workers in Israel following the deal, he said, but rather will build on the current infrastructure in Israel and grow PepsiCo and SodaStream in tandem.

SodaStream CEO Daniel Birnbaum (r) and PepsiCo’s CEO Ramon Laguarta at the SodaStream factory in Israel’s Negev Desert next to the city of Rahat on August 20, 2018. (Eliran Avital)

“This is a growth story” for both companies, he said. “We want to keep SodaStream as it is. We believe in SodaStream as a very solid company” with a solid infrastructure, talent and vision.

SodaStream shares were trading almost 10% higher on the Nasdaq at 5.01pm in Tel Aviv.

PepsiCo has committed to keeping the business local for 15 years, Laguarta said, but “I think it is going to be forever, because the infrastructure is so powerful.”

“This company has demonstrated it is a very successful business,” he added. “Why would you derail a successful business?”

Employees working at the SodaStream factory in Israel’s Negev Desert next to the city of Rahat, September 2, 2015. (Dan Balilty/AP Images)

SodaStream, founded in 1991, makes and sells seltzer machines for home use. The foot-and-a-half-tall machines turn still water into seltzer in 30 seconds. The company also markets dozens of mix-in flavors, such as cola, ginger ale, lemon-lime and fruit punch. Its 3,500 employees produce about 500,000 devices per month, which are sold in 46 countries around the world.

Prime Minister Benjamin Netanyahu on Monday expressed satisfaction over the deal, saying, “The recent major acquisitions of Israeli companies prove not only the technological capabilities that have been developed in Israel but the business capabilities as well. I welcome this huge deal that will enrich the state treasury, and also the important decision to keep the company in Israel.”

Answering a question about boycotts on Israel and its impact on PepsiCo, Laguarta said that the firm operates in 200 countries and “values diversity.” The company feels “comfortable with who we are” and has been doing business in Israel for many years, he said. “We feel very strongly about this partnership and what we can do with it globally.”

SodaStream CEO Daniel Birnbaum (l) and PepsiCo’s CEO Ramon Laguarta at the SodaStream factory in Israel’s Negev Desert next to the city of Rahat on August 20, 2018. (Eliran Avital)

For many years Pepsi Cola, as the company was then known, itself boycotted Israel, and its products could not be found locally, following pressure from the Arab world. The US company finally entered the Israeli market in 1991, when the Arab boycott waned.

The deal will allow PepsiCo to add the personalized, at-home beverage market to its portfolio, he said, allowing the company to reach consumers at home, “beyond the bottle,” Laguarta said.

SodaStream’s Daniel Birnbaum, left, and PepsiCo’s newly appointed CEO Ramon Laguarta fielding questions at a press conference in Tel Aviv, Aug. 20, 2018 (Shoshanna Solomon/Times of Israel)

SodaStream meanwhile, will benefit from being able to tap into PepsiCo’s R&D capabilities, design and e-commerce and distribution systems, he said.

PepsiCo intends to delist SodaStream shares from the Nasdaq and Tel Aviv Stock Exchange, where they are listed. PepsiCo does not plan to list shares in Tel Aviv, Laguarta said.

Birnbaum said the SodaStream has already received government approval to set up a new plant in Rahat that will employ a few hundred additional people from the Negev. “PepsiCo is completely behind the program,” he said. “So, we are not cutting, we are growing, this deal is an accelerator for the business. We will continue investing in Israel and we will grow as much as we need to grow to service the consumer.”

In October 2014, SodaStream announced it would close its West Bank factory in Maale Adumim and move to southern Israel, ostensibly in the face of international pressure from the Boycott, Divestment and Sanctions movement, or BDS, which seeks to hurt Israel’s economy over its policies toward the Palestinians. The movement claimed that SodaStream discriminated against Palestinian workers and paid some less than Israeli workers.

The SodaStream plant in Mishor Adumim, a former IDF munitions factory, overlooks the Judean Hills (photo credit: Elhanan Miller/TOI)

Some 500 Palestinian employees lost their jobs at that time. Israel gave the remaining 74 employees permission to enter the country and continue to work for SodaStream.  The company now has more than 1,400 employees in the Idan Hanegev industrial park near Rahat, one-third of them Bedouin Arabs from the surrounding area.

SodaStream CEO Birnbaum has accused the premier’s office of deliberately blocking permits for Palestinian workers and denying the company relocated due to boycott pressure.

Newly elected CEO of PepsiCo, Ramon Laguarta (right), and SodaStream’s Daniel Birnbaum at the signing of the acquisition deal, August 20, 2018, at SodaStream’s offices in Israel (Lens Productions)

At the press conference in Tel Aviv on Monday, Birnbaum said that through its employment of Arabs and Jews, SodaStream is an “island of peace. Our workers say they are making peace, and on the way making soda as well.”

The SodaStream deal follows a number of exits, particularly in the tech world, that the Israeli business community has witnessed over the years. Last year Intel Corp, acquired Mobileye for a whopping $15.3 billion, the largest ever exit of an Israeli company, according to data compiled by IVC Research Center, which tracks the Israeli tech industry, The second largest tech deal was the sale of Playtika to Giant Interactive Group Inc. for $4.4 billion, followed by NDS to Permira Advisers LLP, in a deal valued at $3.65 billion.

Of the non-tech deals, notable acquisitions include that of Israel’s Frutarom, a maker of flavors and fragrances for use in food, by the US firm International Flavors & Fragrances (IFF) for a massive $7.1 billion in May, and the sale of 10bis, the Tel Aviv-based popular online food-ordering firm, to Dutch firm Takeaway.com N.V. for $158 million.

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