"We think such a deal could be a win-win for both parties," says Citi Research analysts Wendy Nicholson and Peter Chun, in response to Wednesday's article by "Globes" that Starbucks Corporation (Nasdaq: SBUX) is in advanced talks to acquire 10% of SodaStream International Ltd. (Nasdaq: SODA) at a price that would represent a 30% premium to the current market price.
The article generated ripples, and SodaStream's share price rose 10.7% on Wednesday to $44.76, giving a market cap of $935 million. Trading volume was five times the daily average. Given the $1.1 billion valuation for SodaStream in the talks, the premium has narrowed to 18%. Both SodaStream and Starbucks declined to respond to queries from "Bloomberg" about the report.
"We like the SodaStream story because we believe that the home carbonation category is still in its infancy in the US market," write Nicholson and Chun. "We have long-believed that branded partnerships are good for SodaStream - either with flavors (Kool-Aid, Country Time or Ocean Spray) or with other appliance manufacturers (Samsung or Kitchen-Aid) as they help broaden the appeal of SodaStream by leveraging brands that consumers are already familiar with. The one thing that SODA has lacked over the last couple of quarters has been the ability to really manage its growth from a supply chain perspective."
With the caveat, "We like iced coffee, but iced coffee with bubbles?" Nicholson and Chun share investors' concern that most of SodaStream's earnings per share will arrive late in the year, adding, "While we are hopeful that SodaStream will expand its distribution in the US in the near term, the lack of specific news on this front keeps us wary of its certainty."
They reiterated their "Buy" recommendation for SodaStream and the $48 target price, now just a 7% premium over the market prices, saying, "We are cautiously optimistic that SodaStream's underlying growth will indeed improve over the next few quarters."
Published by Globes [online], Israel business news - www.globes-online.com - on April 24, 2014
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