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PepsiCo Inc (NASDAQ:PEP) made a splash in the energy drink market on Wednesday by announcing plans to acquire Rockstar Energy in a deal worth $3.85 billion.

The deal gives the food and beverage giant a foothold in the space that it had struggled to carve out with its Mountain Dew brand alone.

“This highly strategic acquisition will enable us to leverage PepsiCo‘s capabilities to both accelerate Rockstar’s performance and unlock our ability to expand in the category with existing brands such as Mountain Dew,” CEO Ramon Laguarta said in a statement. “Over time, we expect to capture our fair share of this fast-growing, highly profitable category and create meaningful new partnerships in the energy space.”

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The food and beverage giant has actually had a distribution agreement with Rockstar since 2009, which Pepsi CFO Hugh Johnston said has kept the company from innovating in the space or partnering with other companies, according to CNBC.  

Assuming the deal closes, Pepsi will now be able to form partnerships with other energy drink producers. On that front, CNBC reported that Stifel analyst Mark Astrachan wrote that Pepsi is interested in a distribution deal with VPX, which makes the performance energy drink Bang.

Pepsi and Coca-Cola have each been pursuing the energy drink market, as consumers continue to shift away from soda. Energy drink and energy shot sales grew nearly 30% between 2013 and 2018, according to Mintel data. 

That said, both soft drink titans still trail Monster Beverage Corp (NASDAQ:MNST) in terms of market share.

Over in the UK, drinks maker and bottler AG Barr PLC (LON:ABG), which has sold Rockstar drink under a franchise agreement since 2007, pointed out that it still retains the exclusive distribution rights for the Rockstar brand in the UK, Ireland and certain European territories. 

Barr added that it “has a long term contract, extending for several years, for the manufacture and sale of the Rockstar energy brand, which contributes approximately 8% of the Group’s sales volumes”.

Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com 

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