In a move that will make its stake in the sports drink company BodyArmor complete, Coca-Cola has agreed to buy out all remaining shares of the company for $5.6 billion. This is a significant investment by the beverage giant as it looks to diversify from sugary sodas and into healthier drinks that are more popular with consumers.
Coca-Cola has owned a minority stake in the company since 2015, when it made an initial investment of $500 million. Coca-Cola will pay $17.08 per share for remaining shares, which is an 18% premium to the previous day’s closing price. The offer will be funded with cash on hand and Coke expects the deal to close in the first half of 2019.
Coca-Cola is hoping that by making this large investment into a sports drink, they can take it head on with rivals like Gatorade and Powerade. These drinks are popular among athletes, particularly millennials who are more active than ever before. The U.S. beverage market has been in a years-long slump, with carbonated drinks losing market share to bottled water and non-carbonated drinks. In 2017, for example, total volume of carbonated soft drinks fell 1.3% from the previous year, while volume from non-carbonated drinks rose 5%.
In a statement on Coca-Cola’s website, its chief executive James Quincey said, “We believe this is an excellent growth opportunity for the combined company, providing Coke with a unique platform to expand into a rapidly developing segment of the beverage industry that presents a significant growth opportunity over the long term.”
Coca-Cola was largely responsible for driving sugary soda sales to exceptional heights in previous decades, but it’s lineup of sweetened beverages has come under fire in recent years. By diversifying into healthier drinks, the company may be able to improve its public image and stay afloat in a market where consumers are looking for healthier alternatives.
This is not Coca-Cola’s first major investment into health products. The company acquired a stake in fast-growing organic food company Freshly earlier this year, and they already own a 17% share in sports drink brand Vita Coco.
In addition to Coca-Cola’s healthy investments, the company is also investing heavily into other beverages as well. In 2017, the company acquired Costa Coffee for $5.1 billion, giving it a strong foothold in the European coffee market. By 2020, Costa Coffee states it expects to have more than 1,200 stores across China.
Taken together, Coca-Cola’s recent investments into health and wellness drinks are beginning to show that the company is changing with the times. While the U.S. has always been known as a nation of soda drinkers, consumers are looking for healthier choices than ever before.