* SodaStream shares up on takeover speculation
* Experts say Coke could take larger stake in Green Mountain
* Make-at-home soda market still small
* Green Mountain deal marks Coke's return to in-home soda
(Adds comment by industry expert, comment by SodaStream,
industry background, closing share prices)
By Lisa Baertlein
Feb 6 Coca-Cola Co's $1.3 billion
investment in Green Mountain Coffee Roasters Inc puts
pressure on at-home soda leader SodaStream International Ltd
to bolster its position through a partnership or merger
with the likes of a PepsiCo Inc or Dr Pepper Snapple
Coke's move on Wednesday to buy 10 percent of the maker of
the popular Keurig one-cup coffee brewer and exclusively sell
Coke products on its upcoming cold drink machine
is fueling speculation that the world's largest soda company
could eventually buy the rest of Green Mountain, which would
spur other deals in the sector, analysts said.
The Coke deal eliminates SodaStream's "best potential
partner and creates a new level of competition," Canaccord
Genuity analyst Scott Van Winkle said in a note.
Shares of SodaStream rose 7.2 percent to close at $38.35 on
the Nasdaq on Thursday, buoyed by takeover speculation.
Soft drink makers - who have seen U.S. soda sales decline
since 2005 - are warily watching trends such as at-home soda
making and so-called water enhancers, such as Kraft Foods
Group's Mio brand. They are unlikely to let a rival
get too far out in front, analysts said.
"It's tit-for-tat" with Coke and Pepsi, said Bevmark
Consulting Chief Executive Officer Tom Pirko.
Pepsi last year shot down rumors that it had approached
Israel-based SodaStream with a $2 billion buyout offer.
Pepsi declined to comment for this story and Dr Pepper
Snapple did not respond to requests for comment.
SodaStream said in an email that it viewed the Coke-Green
Mountain deal as "further recognition that custom carbonation is
the future of the ... at-home carbonated beverage industry."
While some industry experts hailed the Coke-Green Mountain
deal as historic or groundbreaking, Pirko called it a tentative
step for Coke, which in the late 1980s launched a home and
office soda machine called BreakMate.
BreakMate fizzled after the machines were plagued by
problems and consumers realized it cost less to buy two-liter
bottles of soda at the store.
"People shouldn't misjudge this as a revolution in the soft
drink business," Pirko said of the Coke-Green Mountain deal.
Coke is "testing the temperature of the water to see if they
want to dive in."
Coke has made a handful of bite-by-bite acquisitions -
including Honest Tea - to expand the types of drinks it offers.
While companies such as Starbucks Corp and Dunkin'
Brands Group Inc have deals to provide coffee pods for
the Keurig coffee machine, Coke took the extra step of investing
in Green Mountain as it prepares to launch its single-serving
cold drink machine as soon as October. Coke drink pods will be
exclusive on Green Mountain's new machine, but Green Mountain's
machine will use products from other drink makers.
The investment decision from Coke "causes us to wonder if
this could be the first step in ultimately acquiring a larger
stake in (Green Mountain)," Wells Fargo Securities analyst
Bonnie Herzog wrote in a client note.
Shares of Green Mountain closed 26.2 percent higher at
$102.10 on Thursday. They jumped more than 50 percent in
extended trade on Wednesday after the Coke deal was announced.
The gains prompted some short sellers to make fresh bets
that Green Mountain's stock price would drop. Doug Kass, who
runs Seabreeze Partners Management, shorted Green Mountain at
$128 a share on Wednesday evening.
"It is uncertain that the home soda market is all that large
and whether it is taking market share," said Kass.
"The heaviest users of SodaStream use it for sparkling
water, as the flavor market and usage has been slow to develop,"
Kass said in a note to clients.
John Sicher, editor and publisher of Beverage Digest, called
the Coke-Green Mountain deal a win-win, saying it gives the soda
company a new avenue for growth with new technology that is
cutting-edge and cool.
But skeptics point out that Green Mountain's cold drink
machine is still unproven, that the price consumers will pay for
pods has not been announced, and that Coke's main challenge is
to tempt consumers with new, premium drinks.
"In our opinion, one of Coke's problems ... is not
routes-to-market but innovation in the bottle," Stifel analyst
Mark Swartzberg said in a client note.
Another Stifel analyst, Jim Duffy, estimated SodaStream's
global retail sales at about $100 million annually. That
suggests Coke's potential retail sales on Green Mountain's new
cold beverage machine would make just a small contribution to
its net revenue, which was $12 billion in the third quarter.
(Reporting by Lisa Baertlein in Los Angeles and Jennifer Ablan
in New York and Martinne Geller and Anjuli Davies in London;
editing by Jilian Mincer and Matthew Lewis)