In exchange for being Celsius' U.S. distribution partner and investing $550 million in the company, PepsiCo receives ~7.33 million convertible preferred shares priced at $75, a 5% annual dividend on the shares, and the ability to nominate a director to the Celsius' Board.
A quick comparison puts PepsiCo's 8.5% stake of the company at more than $635 million before we account for the dividend. That's a shrewd investment in our opinion.
But as we've seen with Ford Motor's (F) and Amazon's (AMZN) investment in Rivian Automotive (RIVN) , the value of these investments can fluctuate, and we'll continue to focus on the core business at PepsiCo even though price targets will likely inch higher in the coming days.
Between now and 2031, the global energy market is expected to grow at a compound annual growth rate of 8.2% to more than $108 billion vs. ~45 billion in 2020. While we usually take issue with forecasted numbers associated with hockey stick like forecasts such as that one, directionally we agree with energy drinks growing faster than the overall beverage market.
We are seeing seltzer companies add caffeine to their products and a recent trip to Panera Bread showed it too is offering "clean caffeine" beverages with its Charged Lemonades.
We see several positives with the relationship above and beyond the upside potential in PepsiCo's CELH shares that give it "skin in the game" with Celsius. One such positive is the expansion into new distribution and retail channels the partnership brings to PepsiCo, such as health and wellness retailers including Franchise Group's (FRG) Vitamin Shoppe. We see this opening new doors for the company's healthier snack and beverage products, while also adding to its existing shelf space with grocery and convenience stores.
Celsius will hold a conference call at 2 pm ET to further discuss the details of this partnership. Once we've digested that conversation, we'll look to revisit our PEP price target, which currently sits at $180.