Embed Size (px)
Citation preview
Mergers & Acquisitions Group Project: Deal Proposal
Proposal: The Strauss Group should acquire Soda Stream
Completed by: Rob Eisenberg Lihi Goldwasser Jaime Nacach Howe Wang
December 24, 11
Tel Aviv University, Israel
Overview of the Acquirer and Target Strauss-‐Elite is a food products manufacturer in Israel with Revenues of about 6.8 Billion NIS in
2010 and 13,500 employees. It is traded on the TASE at 4,790 NIS as of December 4th 2011. Total
assets as of December 31, 2010 are around 6.3 Billion NIS, total liabilities of 3.5 Billion NIS, with
shareholders equity around 2.8 Billion NIS. Richard and Hilda Strauss founded Strauss in the
1930’s. They were German Jewish immigrants that started making cheese and eventually moved
into ice cream and puddings in the 1960’s. By 1995 they were in the dairy industry and produced
the Achla hummus brand. Elite was founded by Eliyahu Fromenchenko in 1918 and started out
as a candy business preparing confections from his home. After moving to Riga, Latvia, he
eventually ended up in Ramat Gan in 1934 and started making chocolates. In 1958 Elite launched
Israel’s first coffee company. It bought out Lieber, its major competitor in chocolates and coffee
in 1970. By the 1990’s Elite had moved into the salty snacks and released the Café 3 Corações
brand in Europe and South America. In 2004 Strauss and Elite merged to form Strauss-‐Elite and
renamed it to Strauss in 2007. Strauss is the largest coffee company in Central and Eastern
Europe. It has many different brands in different markets such as Max Brenner, Sabra, Pedros,
Yotvata, MD Café, Elite Café, and Strauss Water just to name a few.
SodaStream is the world’s largest manufacturer, distributor and marketer of Home Carbonation
Systems. They sell their brands in over 50,000 retail stores in 42 different countries.
Headquartered in Israel, it has 13 different production plants. Guy Gilbey invented it in 1903.
The company became popular in the 70’s and 80’s when there were a number of brand name
syrups available. In 1998 the company was bought by SodaClub from Cadbury Schweppes and
decided to focus on healthier drinks. Its IPO traded on the NASDAQ in 2010 at $24.75 USD and
now trades at $30.24 USD as of December 4th 2011. It has revenues of $215 million as of
December 31st 2010 with total assets of $225 million, liabilities of $80 million and shareholders’
equity of $145 million. It’s market cap is about $608 million.
Acquisition reasoning Strauss is looking to increase their revenue from abroad. They need 50% of its revenues to come
from overseas operations. Since they operate in about 20 countries and SodaStream operates in
42 countries, the acquisition of SodaStream will be a great way to add even more international
recognition to their brand. In an article published in 1997, Strauss-‐Elite mentioned that it wiould
invest $10 million in the next three years to promote the future brand name, Chief Executive
Officer Erez Vigodman said in a press conference at the company's headquarters in Ramat Gan.
"More food companies around the world understand the importance of having a company with a
home brand that incorporates other products as well," Vidogman told reporters. "From today, we
are one international company with a clear and focused identity and with one name."
With the name of the new acquiring company, Strauss SodaStream, we can use good alliteration
for a catchy name while Strauss gets its name out there without losing the dedicated SodaStream
brand name that consumers cherish. Even though these comments are over 10 years old, their
goals of increasing international recognition have not changed. Once Strauss has established
connections with other countries through SodaStream, they will be able to use their
manufacturers and customer base to generate a demand for Strauss products. We believe that
SodaStream will also want some of the share into the Strauss market. Strauss has big ties in the
coffee industry which is a part of the beverage industry. In fact, tests have shown that many
people are addicted to caffeine, which means that where there are coffee drinkers, there are also
soda drinkers. So introducing this home-‐based carbonation system to millions of coffee
consumers under the Strauss control would highly increase sales for SodaStream.
This type of merger would be very beneficial by expanding Strauss’ horizontal integration. We
think that many synergies will occur. On the financial side, we see that the Selling G/A Expenses,
which are due to advertising and sales, wipe away 87% of SodaStream’s gross profit. This metric
for Strauss accounts for 77%, a whole 10% lower than that of SodaStream. We believe that
Strauss is able to get their product to a wider audience while incurring a much smaller cost.
When the two firms combine, the cost of these marketing, advertising and selling strategies will
go down as job functions will merge and they will be utilizing a system that is already in place.
This will directly affect the bottom line for SodaStream and therefore Net Income will surely
increase.
Evaluation of Synergies Because part of Strauss and SodaStream operate in the same beverage industry, they will
definitely recognize some revenue enhancement synergies. SodaStream can offer their customers
coffee products and Strauss will offer their customers Home-‐carbonated beverage systems. They
will be able to increase and combine marketing tactics to attract the same existing customers to
different products. With a new marketing campaign that combines both companies’ images, they
will effectively reach a greater number of potential customers than they are now. . This will
allow better distribution channels, increasing sales and decrease cost of goods sold through cost
reduction synergies.
Another synergy, would be Strauss’ ability to buy more raw materials from their current
suppliers, but at much better negotiated prices. Strauss purchases raw materials such as plastic
for all the packaging of their food products and SodaStream manufactures reusable plastic bottles.
They would be able to also combine manufacturing plants and produce more than one thing at
one location. Additionally, since no company needs two CEO’s, CFO’s, etc. they will save on
combining functions and eliminating unnecessary overhead. Since they will be combining
companies, they will be able to realize asset reduction synergies by getting rid of redundant
headquarters and excess inventories, receivables and cash balances. The managerial skills of
Strauss’ leadership have a long-‐standing track record and will definitely result in synergies there
as well. There will also be real option synergies realized when Strauss gains access to
SodaStream’s 65 patents and 198 worldwide trademark registrations.
Possible alternatives to the acquisition Although our research does not recommend that the Straus Group use any alternative methods
instead of an acquisition, we’d like to present other methods in which the Strauss Group would
still be able to benefit from SodaStream. One possibility would be through the use of a Strategic
Alliance. By creating a strategic alliance between the two companies, The Strauss Group would be
able to possibly gain the exclusivity and rights to distribute the SodaStream product lines to the
geographic areas in which it currently operates, which are much larger than those in which
SodaStream currently distributes its products. In this scenario, the Strauss group would benefit
by selling a new product, but its profit margins by selling these new products would be limited to
a distributor discount, and wouldn’t be able to fully enjoy the true high-‐profit margins of the
SodaStream products. Strauss would provide the strategic alliance with its global resources and
capabilities. SodaStream in the other hand would certainly highly benefit by obtaining such a
large distributor such as the Strauss Group, further expanding their SodaStream brand globally;
yet such an alliance would not benefit both companies equally.
Another possibility would be to create a Joint Venture. Through the creation of a Join-‐Venture
(JV), the two companies could setup an independent company to market and distribute the
SodaStream products, and combine Soda Stream’s creative marketing approaches with Strauss’
powerful manufacturing and distribution experience. Nevertheless, creating a JV would most
likely not be a feasible alternative, as there isn’t really a need for SodaStream to spend more of it’s
resources in setting up a separate company with Strauss, nor for Strauss to create a whole new
business unit simply to “help” sell SodaStream through it’s network. A JV wouldn’t help either
party in creating any added value for their companies, but most likely would just be an
unnecessary venture.
Alternatively, through the creation of a licensing agreement, the Strauss group would have the
ability to resell the SodaStream products as part of Strauss’ product line, possibly even re-‐brand
them. Through such an agreement, SodaStream would simply have a new “partner” to sell to, but
would not benefit from Strauss additional resources such as manufacturing, market penetration,
or brand recognition. Strauss would probably benefit from additional income form the sales of a
new product, but again, as in a strategic alliance, would be deprived from enjoying the high profit
margins that SodaStream earns.
Finally, another alternative to acquisition would be to for the Strauss group to have a Minority
Investment in SodaStream. This would be the only possible alternative to an acquisition that we
believe would benefit both companies. Through such an investment, the Strauss Group could
partially own SodaStream and therefore receive the net income that’s proportionally related to its
share of the company. In a way, a minor investment is a partial acquisition, which is what we
really recommend the Strauss group to do.
Why is it logical to acquire rather than partner?
As we’ve discussed, the Strauss Group is mainly interested in expanding its market reach in the
food and beverage industry around the world, and it must do so by being a product leader of
innovation and quality. It is more logical that the Strauss group acquire SodaStream, rather than
choose any other alternative method for the following reasons: First, The Strauss Groups is much
larger in size, and has a developed network of manufacturing plants and distributors of its
products around the world, including the USA, in which SodaStream plans to expand aggressively
next year (See SodaStream Company presentation Exhibits). Second, SodaStream is still a
company that’s growing, and it is more beneficial that it grows under the wings of the Strauss
group, which already has the experience in expanding product lines around the world. Third, only
through acquisition would both Strauss and SodaStream enjoy the full benefits of each other’s
resources. Strauss wants to expand into this new “earth friendly” beverages industry, while
SodaStream is interested in quickly being able to sell its products all around the world.
Buyer vs. seller interests and motivations. The Strauss Group (Buyer) Interests and Motivations
1. Expanding its business into the popular “earth friendly” market culture.
The "green" consumer market movement is an ongoing trend, which has gained lots of
popularity and promotes products that are perceived to be better for the environment. Being a
“green” consumer and company means that pollution caused by the production, packaging and
transport of bottled beverages can be avoided or reduced; 1 SodaStream bottle replaces over
10,000 conventional ones. Another benefit to being “green” is the increasing importance of
value and savings in consumer's lifestyle and purchase decisions. Buying SodaStream products
is cost effective: saving up to 70% for sparkling water and up to 30% for carbonated soft
drinks. Plus, SodaStream’s “fizz-‐preserving” cap means less wasted flat soda. Additionally,
SodaStream products promote health and wellness. Their products have no high-‐fructose corn
syrup, fewer carbohydrates, fewer calories than popular soft drink brands, and diet flavors
contain Splenda®. All SodaStream soda flavors use All-‐Natural ingredients, and promote
greater water consumption from the simple fact that its customers need to use water to build
their soda.
2. Adding a complementary product line to Strauss’ Tami4 water machines.
The Tami4 water machines already provide Strauss customers with the ability to get quality
drinking water whenever they are thirsty. Therefore, if Strauss would acquire SodaStream, it
could sell the SodaStream products to those same Tami4 customers; Allowing them to now not
just drink water, but also to create a soda by adding some gas and one of 120+ flavors to their
water.
3. SodaStream uses the successful Razor / Razor Blade Business Model
This business model forces customers to constantly purchase consumable products (Cans of
CO2 gas and soda flavors). These purchases generate sustainable, long-‐term revenue for
SodaStream, which would eventually become Strauss’ revenue after an acquisition.
4. Expand Strauss business into the beverages market
Strauss currently operates mainly in the confectionary, coffee, dairy and salads markets, but
hasn’t tapped into the beverages industry. Although SodaStream doesn’t manufacture
beverages themselves, but rather allow consumers to build their own beverages, it is still
indeed playing in the beverages market. In fact SodaStream’s main competitors are basically
Coca Cola and Pepsi, who manufacture most of the worlds soda beverages. By owning
SodaStream’s distribution market into the beverages and home appliances market
(Consumables and Soda Makers respectively), Strauss will now have its hands in a new
business arena, with the potential to introduce many other complementary products in the
future (including it’s Tami4 machines, which are mainly popular in Israel, but could certainly
be sold around the world just like SodaStream machines).
SodaStream (Seller) Interests and Motivations:
1. Expand its Market: Sell its products throughout the world.
Accessibility of consumables reaching mass market & multichannel coverage, such as that
which the Strauss group can provide. SodaStream’s CEO recently said “Today we sell to the
U.S. only through the Internet, and grow by 50% every year, but our goals require entry to
retail chains in the U.S., and we are conducting negotiations with them”. Certainly, they can
benefit from the market channels, which the Strauss Group already has.
2. Increased funding: SodaStream may be able to obtain the necessary funding it currently
lacks to aggressively attack new geographic areas not already covered by either of the two
companies. SodaStream has been expanding at a great rate in the past few years, and would
like to continue to do so. Although they are already profitable and have cash to reinvest into
their company, having Strauss as a “parent” company who can back them up and help them
expand will simply allow SodaStream business to grow much quicker.
3. Product Development growth:
Through the use of Strauss’ experience and resources, SodaStream can continue to innovate
new products & soda flavors. In fact, they could build a Tami4 Water machine, which could
integrate the SodaStream Soda Maker into it, this way people can buy one machine and either
get plain water (hot or cold) or make their own soda on the fly.
4. Cultivate users for life
Strauss has been successful in not only gaining new customers, but also in retaining them for
long periods of time or for life. SodaStream is interested in also creating such a culture in
which customers become lifetime buyers of their products .To do this, SodaStream must
literally cultivate a continuous ideology of the importance of “being green/earth friendly”, of
using less plastic bottles, saving money, and being able to enjoy all of the benefits of the
SodaStream products forever, and not just as a “trendy product”. SodaStream has already
done a great marketing job in order to put its products out there in the world (Visit
www.facebook.com/SodaStream), through many original marketing campaigns. Yet again,
there’s nothing better than having access to the resources of a food leader and giant such as
the Strauss group, which would give SodaStream even more room for doing even more
creative campaigns.
Possible Issue during negotiation and early contact The planning and negotiation phases determine what actions and changes must occur in the later
implementation phase. While as discussed about, the merger of SodaStream and Strauss shows
potential for net gain, but merger of any two corporations will inevitably face the challenge of
consolidating difference work force, history and operational backgrounds. Such challenges might
lead to lack of sufficient broad member support, difficulty in further integration and failure in
performance. Below we will discuss some of the possibilities facing Soda Stream’s consolidation
with Strauss.
1. Obstacles from SodaStream’s Strong Growth Perspective
The first possible obstacle derives from SodaStream’s recent strong performance. SodaStream
has achieved outstanding performance recently via successful expansion into major super
markets such as Costco, Target, and Best Buy. Facing the perspective of a strong growth, Soda
stream’s government board might reject the proposal of Strauss. Even if the final agreement
fall through in the end, it is inevitable for the board members of SodaStream to demand
premium acquisition price from board of Strauss, imposing potential obstacle evaluation as
the final price might be above industrial average.
2. SodaStream’s West Bank Facility Poses Political Concern
Beyond the acquisition price premium, SodaStream’s facility in West Bank might also become
a concern for Strauss’ board members. In January 2011, Who Profits From Occupation
published a report about Soda Stream's facility in Mishor Adumim, an Israeli industrial zone
across the green line in the West Bank. There is controversy about the products being labeled
as made in Israel since the West Bank is part of the Palestinian territories. One of concerns
would be if such background will tarnish Strauss’ brand image. Although the final decision
and impact of such factor depend on board members’ political stances and personal takes on
such issues, it will nevertheless become a foci of debate during early negotiation.
3. Strauss’ as a Monopoly and Acquisition Challenge
Lastly, potential obstacle from regulators in Israel will add more uncertainty to the
consolidation of the two companies. Strauss was labeled by the Israel AntiTrust Authority as a
monopoly in 2004, a status that essentially places the company under government regulation
limiting the way it can change the price of its products to protect the consumer and smaller
competitors. The deal will have to go through careful scrutiny of the regulators before it is
allowed to happen. Meanwhile, facing such possibility of regulatory scrutiny the board of
SodaStream might be concerned about exposing to unnecessary governmental attention and
decide to back up from the proposal.
To sum up, all three topics above will be mentioned during early contact and negotiation
inevitably, and both sides will evaluate each other’s stance before making further contact and
feasibility assessment. Without thoroughly discussion of such issues, the consolidation will
not be easily achieved.
Valuation M&A normally involves using more than one valuation technique to arrive at a final enterprise
valuation. The choice of the valuation structure to a large extend depend on the acquisition
target’s size, both parties’ power balance and macro-‐economic situations. In the case of
SodaStream and Strass, we believe a high price premium will be demanded and the company will
be evaluated at around 641,887,000. Logic for such evaluation is illustrated below.
1. SodaStream’s Demand for High Price Premium
To begin with, the board of Strauss should expect to pay a higher price premium for
Sodastream. Compare to other market peers, SodaStream has demonstrated strong financial
and strategic growth perspective recently. As mentioned above, such strong growth and
bright perspective are mainly due to the rapid expansion of its distribution network into
Costco, Target, and Best Buy . Durin the period, the stock price of SodaStress gained more
than 4%. To convince the board members of SodaStream to trade their ownership of a
company with so much possibility and growth space, Strauss would present very attractive
premium during negotiation to persuade SodaStream to give up its ownership.
2. Current Valuation Ratios and Comparison
Following the price premium, the financial team of the deal analysis should then prepare
various rations for the enterprise evaluation and price estimations based on various
resources. For example, according to infinancialsanalytics.com, the EV of SodaStream in 2011
is 641,887,000 USD. A brief summary of various ratios for SodaStream evaluation is listed
below. Meanwhile, as displayed, Sodastream’s P/E, P/B and P/S are all comparatively higher
than the industry average, indicating a more expensive valuation. For example, Sodastream
International Ltd shows a EV/EBITDA ratio of 12.38 for the next 12 months. This is
significantly higher than the median of its peer group.
SODA
SODA Industry Avg S&P 500
Price/Earnings 21.9 17.7 13.5
Price/Book 2.8 2.1 2.0
Price/Sales 2.2 0.7 1.2
Price/Cash Flow -‐90.1 8.6 8.4
Dividend Yield % — 1.8 2.3
Enterprise
Value(in
thousands USD)
EV/EBITDA
Relevance Score
2012 next 12 mth
Sodastream
International 641 887 12.21 12.38
SANDEN
CORPORATION
1 318 898 N/A N/A 100%
Rinnai Corp. 2 980 360 5.94 6.07 93%
Indesit Company 954 283 2.69 2.70 93%
Suggested Deal Design Acquisition of 100% of SodaStream's stocks and control for NIS 2.73B in cash. Acquisition itself is
a formal part of the deal, meaning, the legal and accounting measures which include: transfer of
SodaStream's stocks to Strauss group's ownership, Privatization of SodaStream as it is a public
company traded in NASDAQ, 84% owned by institutional parties (see Exhibit 4). Acquiring 100%
of stocks by Strauss will privatize the company, meaning, the institutional holders will get the
equivalent part of their shares and it will be deleted from NASDAQ. In addition, it is suggested
that SodaStream’s major executive officers (see exhibit 5) receive options equal to 5% (in total) of
the equity with a vesting period of 5 years in order to create incentives for them to maintain their
jobs after the merge takes place and keep creating value for new shareholders. After the above
occurred, merge of assets, rights and liabilities will take place and the integration of two separate
entities into one at the commercial, cultural and HR aspects (the complicated and challenging
part) will take place.
Payment Method and Risk Management Strategy Multiple strategies and combination of them can be structured in the M&A deal to maximize the
benefit of both sides and to advert undesired risks of Strauss. Base on an thorough analysis of
sizes of both companies, both sides’ power dynamic and current market situation, we propose the
deal should be based on cash payment and an earn-‐out term should be structured to protect
Strauss’ benefit and facilitate the dealing making.
1. Cash Payment Is Recommended
Stock and cash are two main payment methods in M&A deals, each represents different
market and company performance scenarios. For example, stock is used in greater volume
when the stock market is optimistic. Meanwhile, the smaller the acquired firm, the higher the
chance the acquisition will be cash based. When an acquisition is made by cash, target
shareholders’ returns are materially higher and buyer shareholders returns are zero to
positive.
Such analysis fits the scenario of Strauss and Sodastream well. In this case, SodaStream is a
comparatively smaller enterprise and Strauss has incentive to develop more control over the
SodaStream governance, thanks to SodaStream’s strong performance. At the same time,
SodaStream is a smaller firm comparing to Strauss, and current stock market doesn’t pose as
a positive recommendation for stock payment. Meanwhile, SodaStream’s strong performance
recently would give the board of the SodaStream leverage to insist on favorable cash
payment.
2. Earn-‐Out Possibility
As mentioned earlier, Strauss is expect to pay large premium while using cash payment. High
risk can potentially be a major concern for Strauss and become obstacle in finalizing the deal.
To solve such concern, earn-‐out provisions can be an effective strategy for closing an
acquisition when the financial performance or value of the target company is uncertain. In an
earn-‐out agreement, the buyer gives the seller additional compensation if the acquired
business achieves certain criteria. It can be particularly useful when the target company is a
startup or involved in new technologies or new markets. Strauss can utilize earn-‐out in the
transaction to secure more value from SodaStream board members while mitigate
uncertainty and close the deal in the most efficient manner
Selected Integration Method & Reasoning First, we suggest creating a leadership team including both companies' representatives and
external consultants in order to understand SodaStream's existing culture, activity and
procedures. Leadership team is crucially important in order to transfer the know-‐how
appropriately, think how to integrate both companies successfully and create real value for new
shareholders in the long run. Because a team including all executive officers cannot be effective
(due to too many members), it is suggested that permanent team members will be-‐ Daniel
Birnbaum& Yonah Lloyd (SodaStream), Rami Ronen& Tomer Harpaz (Strauss Group) and
external consultants-‐ whereas other executive officers (See Exhibit 2) will participate on
temporary basis and share aspects regarding their domain in the future Merge (always parallels
from the two firms in order to maximize efficiency and best available decision making
afterwards). Second, we suggest slow paced and gradual PMI whereas main Factory's location
remains in Mishor Adumim, brand name remains "SodaStream" under Strauss water’s division
and consolidation of operations, organization and culture of the two firms takes place as follows:
• Organizational structure changes will take place as new management of Strauss will take
charge, new functions will be terminated as a result of new needs identified by the Strauss
and leadership team including SodaStream's management change of positions, merge of
functions in order to avoid duplications and unnecessary costs (including real-‐estate, logistic,
HR),
• Distribution channels will be integrated in order to avoid duplications and cut on costs,
change of relationships with employees, suppliers, consumers and distributers will take place.
Globally, as each of the companies has its strengths and advantages in different locations-‐ as
SodaStream operates in developed countries (the US, Canada, Australia, U.K., Germany, Italy,
Sweden ect.), Strauss Group operates with its coffee activity mostly (but not solely) in
developing countries (such as Poland, Bulgaria, Romania, Ukraine, Russia and Brazil) and
Strauss water just started its global activity (in China and the UK)-‐ each activity has a new
platform for penetration-‐ the soda and water activity in eastern Europe and other developing
countries and Strauss's activity in countries it has not yet penetrated with one of its products
(coffee, chocolates, cold salads, ect.), especially with its AFH and water segments, if it stands
with its penetration principles.
• Operational, Control and Procedure changes will take place: policy of the new company,
reporting lines, decision-‐making, hierarchy, control systems usage (via rulebooks) and the
way that work flows through the business will be implemented according to Strauss groups'
existing conducting and leadership team's recommendations and decisions.
• R&D synergy will take place as the soda and the purifying water are complementary
products-‐ we suggested to think of the creation of a product which combines the 2 features in
1 product (Tami4 water machines and SodaStream’s Home carbonation systems).
• Marketing and promotion synergy will take place via Marketing & sales promotions and
Combined services. Marketing & sales promotion: since penetration to new markets and
maintaining market share revolves around the same campaigns and media, Strauss's
enormous PR budgets may enable creating wider awareness to SodaStream's brand and
products. Combined services: the soda products will be placed in the selling points by the
Tami 4 products and vice versa. This should be started in Israel and should be expanding
globally afterwards.
• New Culture Implementation will take place: learning Strauss groups' culture includes the
following elements:
o The Paradigm: what the group is about, what it does, its mission, values and assumptions
o Power Structures: who makes the decisions, how widely spread is power, and on what is
the power based on.
o Symbols: organizational logos and designs which create meaning of how employees
perceive the organization, but also extend to symbols of power such as parking spaces.
o Norms, Rituals and Routines: management meetings, board reports, habits and so on but
also rewarding system, parties and events in which employees gather on a friendly basis.
o Stories and Myths: build up about people and events, and convey a message about what is
valued within the organization.
As seen, organizational culture combines aspects regarding all of the above as well.
Understanding and implementing the organizational culture in the visible and invisible layers is
without a doubt crucial for the success of the merger.
Potential Employee/Management Issues As Strauss is familiar with the integration process as a result of M&A , it should realize that the
complicated part is the adaptability of "target" company's employee to the new culture and
changes revolved around the acquisition as explained above. However, even if implementation is
done properly and particularly if it is not done properly, there are potential issues that may occur:
Management Turnover: a merge will include firing some of the executives or offering them new
positions in order to avoid duplications. Generally, even if not fired, core executives of "target"
firms tend to leave their positions during the first year after acquisition feeling they were
demoted/ it is a good opportunity to leave/ that their mission was completed after the merge. For
example, CEO, Daniel Birnbaum, might refuse to be 2nd (as Strauss Water already has a CEO) after
so many years as a leader.
Although SodaStream's activity doesn't hold a unique patent or invention, and although we
believe Strauss definitely, with its existing global activity and M&A experience, will be able to
adjust to management turnover, it might have harmful effects on SodaStream's performance
and/or the overall merge success. Maintaining core employees of SodaStream is one of the main
challenges Strauss Group would have. For that, it should offer them better salaries and
employment conditions, options (as suggested) and rewarding programs.
Loss of autonomy: autonomy in the workplace can have benefits for employees, teams, managers,
and the firm as a whole, but it also may have drawbacks. Employees, seniors in particular, that felt
autonomous in their jobs beforehand (discrete and independent to schedule their work and
determine how things to be done), might feel as a result of changes in operations and procedures
loss in autonomy. That might come to fruition with decrease in job satisfaction, and in some cases,
lack of motivation to perform the job.
Cultural change: as mentioned above, cultural implantation is one of the most challenging parts
in M&A. If there is a huge gap between the former and new culture, mediation it is much harder.
Employees of SodaStream might not identify with the new organizational culture, vision and
goals. For instance, SodaStream's employees might not get adjusted to the new and more risk
taking culture of Strauss Group. That might raise feelings of frustration and discontent, resulting
in lack of commitment and loss of productivity.
SodaStream's Employees not adjusting to the merge: besides cultural change, other changes
such as: new operational systems, new policies, new decision making hierarchy, change in
working process and integration of distribution channels might have effects as employees will
find it hard to change their existing manners which they hold for a while.
Future implication of increased manufacturing capacity to support growth: In order to create
value to shareholders, the merge should obtain benefits the companies couldn’t achieve without
it, such as increase of sales. To enable this, manufacturing capacity has to increase. This refers to
creating new factories/assembly lines and the transfer of employees to new factory locations
and/or hiring a new working force. Both changes mentioned may create difficulties for employees
and as a result might increase the risk of the merge’s success.
Deal success potential and possible sources of value Would the deal be a success?
For sure it would! The deal would most likely be a success for both companies for many of the
reasons we’ve previously mentioned. To summarize, let’s look at the sources of values for the
consolidated Strauss-‐SodaStream Group:
1. SodaStream and Strauss overall strategy and goals are compatible. They both want
continuous innovation for better products, and continuous market expansion.
2. Companies’ cultures would be easy to integrate, as both of them are Israeli. Both of the
manufacture products in Israel, but now do most of their business outside of Israel, so they’re
very similar in terms of how they operate internationally.
3. There’s a huge potential that when Strauss acquires SodaStream, it will succeed in growing its
business, by diversifying it’s portfolio of products, and entering the beverages market.
4. Part of Strauss vision is to adjust to environmental changes and consumers’ preferences, and
by entering the “Green/ Earth Friendly” market; Strauss will follow this new consumption
trend, and thus attract new customers. Specially those who prefer not buying Strauss snacks
and chocolate products
5. By acquiring SodaStream, Strauss will expand to markets it does not operate in (Such as
Western Europe) as it operates mostly in Eastern Europe (Romania, Bulgaria, Ukraine, Russia,
Poland…)
6. The acquisition will also help Strauss continue it’s international expansion outside of Israel.
7. As for SodaStream’s business, it would immensely enjoy Strauss's economy of Scale, which
will help it reach new customers around the world.
8. Strauss's promotion and marketing will enlarge SodaStream’s exposure to target consumers.
For example, it could begin by targeting all the Tami4 and Salads customers, who already
have a “Green” mindset.
9. Through Strauss' deep resources, SodaStream' could have the funds it’s may need to build
new factory in the US or additional assembly lines as a result of its rapid growth it expects to
gain in the US and other markets SodaStream would attack and expand into through Strauss.
Important Notes: Our estimates are based on the cultures, structures, goals and strategies of
both companies, after carefully analyzing how both companies would mutually benefit and
complement each other. Yet, it’s always important to remember that things in real-‐life could turn
out different, either for the better or for the worst. Therefore, no estimate could truly estimate the
success of a deal until it’s actually completed in the market.
Resources • CNN Money: http://money.cnn.com/2011/11/09/markets/tweets_stocktwits/index.htm • Emails back and forth with Yonah Lloyd -‐ Executive Director of Corporate Development and Communication at SodaStream
• Fool.com: http://www.fool.com/investing/high-‐growth/2011/06/03/how-‐sodastream-‐goes-‐to-‐160.aspx
• Google Finance: http://www.google.com/finance?q=NASDAQ%3ASODA&fstype=ii&hl=en • Morning Star newspaper: http://financials.morningstar.com/valuation/price-‐ratio.html?t=SODA®ion=USA&culture=en-‐us
• Nasdaq: http://www.nasdaq.com/symbol/soda/ownership-‐summary • Soda Stream: http://www.sodastream.com & http://sodastream.investorroom.com • Strauss Group: http://www.strauss-‐group.com/AboutUs-‐Overview • Wikipedia, SodaStream: http://en.wikipedia.org/wiki/Sodastream • Yahoo Finance: http://finance.yahoo.com/q/is?s=SODA+Income+Statement&annual
Exhibit 1: SodaStream Product Line
SodaStream Complete Carbonation Systems:
Exhibit 2: SodaStream Revenue Model:
Exhibit 3:SodaStream “Green/Earth Friendly” Educational Marketing
Exhibit 4-‐ Ownership Summary
Top 10 Holders
Exhibit 5-‐ Executives officers and Directors SodaStream Executive Officers: Name Position Daniel Birnbaum CEO Daniel Erdreich CFO Yonah Lloyd Executive Director of Corp. Development& Communication Tali Haim Head of Global Business Development Yossi Azarzar Director of Global Operations Eyal Shohat General Counsel and Corporate Secretary Rachelle Ostro Director of Global Human Resources SodaStream Directors: Name Position Yuval Cohen Chairman Maurice Benady Director Eytan Glazer Director Lauri A. Hanover Director Marc Lesnick Director David Morris Director
Strauss Group Executive Officers: Name Position Gadi Lesin President & CEO, Strauss Group Shahar Florentz
EVP& CFO, Strauss Group
Michael Avner EVP, CLO & Corporate Secretary, Strauss Group
Tomer Harpaz EVP, Strategy and Business Development, Strauss Group
Zion Balas CEO, Strauss Israel Todd Morgan CEO, Strauss Coffee Giyora Bar Dea CEO, Strauss North America Rami Ronen CEO, Strauss Water Nurit Tal Shamir
SVP, Global Human Resources, Strauss Group
Strauss Group Directors: Name Position Ofra Strauss Chairman Michael Strauss Director Dr. Arie Ovadia Director David Mosevics Director Meir Shanie Director Ran Madayan Director Ronit Haimovitch Director Dalya Lev Director Akiva Moses Director Prof. Dafna Schwartz Director Dr. Michael Anghel Director
