Full disclosure: I own stock in Pepsi
$4.1 billion collars for a company that did ($350 million or) $700 million in sales, which values the company at 10 to 11 times the trailing 12 month revenue. That’s a huge premium, massive by any of the buyout offer calculations I learned in business school. The normal median multiple for a public nonalcoholic drink company is 1.2 times, so not even a measly $1 billion dollars.
One theory is that they had to pay that much because of their late entry into the enhanced water market. Pepsi’s Propel is the number one in the enhanced water market. The enhanced water market is rapidly becoming a major force for profits, sales and acquiring new customers. Coca-Cola had no such operation and with Glaceau’s cult-like status, celebrity fans and wide distribution unit, Glaceau probably looks uniquely position for Coca-Cola and an antidote to Pepsi’s star, Propel.
“We see the deal as a question mark for Coke,” said J.P. Morgan analyst John
Faucher in a research note. “We think Coke will need to prove it is beneficial
to shareholders to spend $4 billion for the latest “hot” beverage brand.”