Dr Pepper Snapple, Pepsi buy drinks makers in bid to diversify

Tue Nov 22, 2016 3:39pm EST
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(Reuters) - Dr Pepper Snapple Group Inc (DPS.N: Quote) and PepsiCo (PEP.N: Quote) on Tuesday both announced plans to buy alternative drinks makers, the latest examples of beverage companies branching into products perceived as healthier as soda sales decline.

Dr Pepper Snapple, which makes flavored tea, juice drinks, 7UP and Schweppes sodas, will buy antioxidant beverages maker Bai Brands LLC for $1.7 billion in cash, the companies said in a joint statement. Dr Pepper Snapple, which is based in Plano, Texas, already has a roughly 3 percent stake in Bai and a distribution deal with the Hamilton, New Jersey-based company.

Pepsi, based in Purchase, New York, said it will buy probiotic drinks maker KeVita Inc for an undisclosed amount. Reuters reported last month the soda maker was nearing a deal for Oxnard, California-based KeVita, estimated under $500 million.

The moves signify a further push by beverage companies into more premium products amid a challenging business environment. Carbonated beverage demand hit a 30-year low in the United States last year, according to Beverage Digest.

Officials globally are considering sugary drinks taxes to try to stem obesity and diabetes epidemics. This month alone, five U.S. regions approved such levies.

"This is a continued play on health and wellness. The noncarbonated beverage space continues to grow at the expense of the carbonated sodas that Pepsi and Dr Pepper are known for," said Adam Fleck of Morningstar in Chicago.

Dr Pepper Snapple shares jumped 2.6 percent, and Pepsi shares were up 0.6 percent.

Bai, which means "pure" in Mandarin Chinese, makes carbonated flavored water, coconut water and premium ready-to-drink teas. KeVita makes kombucha, which is fermented tea, and other drinks that are certified organic, gluten-free and vegan.

Soda giants have built stakes and bought beverage companies to cater to changing tastes. Coca-Cola Co (KO.N: Quote) bought organic bottled-tea maker Honest Tea and Zico Coconut Water and invested in organic juice maker Suja.   Continued...

Dr Pepper bottles are seen inside a store in Port Washington, New York May 7, 2008. REUTERS/Shannon Stapleton