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PepsiCo buys $550 million stake in energy drink maker Celsius Holdings

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PepsiCo buys $550 million stake in energy drink maker Celsius Holdings

PepsiCo (PEP-US) on Monday announced a $550 million investment in energy drink maker Celsius Holdings (CELH-US), a long-term distribution deal with the smaller company.

Celsius shares rose 8% in early trading Monday on the news, giving it a market value of $6.7 billion.

Celsius Holdings expects to gain more shelf space in existing retail avenues and expand into independent stores such as gas stations. PepsiCo will assist with distribution starting Monday.

PepsiCo’s investment in Celsius translates into a minority stake of about 8.5% in the company. The food and beverage giant will also gain a seat on Celsius Holdings’ board of directors.

Celsius Holdings, founded in 2005, reported that its energy drinks had exploded during the pandemic. Its U.S. revenue surged 217% to $123.5 million in the first quarter of this year.

The company positions its beverages as “healthy” energy drinks, targeting active and fitness young consumers. Celsius Holdings beverages include ingredients like ginger and green tea instead of artificial preservatives or sugar. The company also claims that the drinks have thermogenic properties, which means drinking a single bottle can help increase metabolism and burn calories.

For PepsiCo, the deal helps strengthen its ties to energy drinks. The category is one of the fastest-growing beverage markets outside of alcohol, and PepsiCo has been doubling down on the energy market in recent years as soda consumption has declined. In early 2020, it bought traditional energy drink maker Rockstar for $3.85 billion, with the goal of revitalizing its sales. Celsius Holdings recently overtook the brand to become the 4th most popular energy drink in the US.

PepsiCo previously signed an exclusive distribution deal with another fast-growing energy drink upstart, Vital Pharmaceuticals’ Bang Energy. But the relationship quickly soured, leading to a legal battle in which Pepsi won. The two companies parted ways earlier than expected last June, sparking speculation that PepsiCo will seek to acquire Monster Beverage (MNST-US) or Celsius to increase its market share in the energy drink category.

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