Shares of energy drink company Celsius (NASDAQ:CELH) are surging higher by more than 10% after Pepsi (NASDAQ:PEP) announced it had taken a roughly 8.5% minority stake in the company. Pepsi will invest $550 million in CELH stock in exchange for convertible preferred stock. These shares will be priced at $75 and will carry a 5% annual dividend.
Pepsi will help Celsius expand its distribution network in retail and convenience stores, starting today. In addition, Pepsi will become Celsius’ preferred distribution partner globally and nominate a director to serve on the Celsius board.
There is currently speculation that the Pepsi stake may serve as a prelude to an acquisition. In 2020, Pepsi acquired Rockstar Energy in a deal worth $3.85 billion. An acquisition of Celsius would further allow Pepsi to penetrate into the energy drink market.
Celsius CEO John Fieldly added:
“We believe the opportunity to partner with a global best-in-class distributor provides Celsius with significant near-term additional shelf space in both existing retailers as well as new expansion within the independent retailers that represent a significant portion of the U.S. convenience and gas channel where approximately 70% of energy drinks are sold.”
CELH Stock: Pepsi Discloses 8.5% Stake
So, why exactly did Pepsi decide to take this stake? For starters, Celsius is currently the most popular energy drink on Amazon (NASDAQ:AMZN), beating out Monster (NASDAQ:MNST) and Bang Energy for second and third place, respectively. CNBC reports that Celsius is currently the fourth-most popular energy drink in the U.S.
The energy drink company has also demonstrated impressive, sustained growth. During Q1, revenue tallied in at $133.4 million, up 167% year-over-year (YOY). North America revenue was $123.5 million, up 217% YOY. International revenue was a different story, down 10% to $9.9 million.
As of Q1, Celsius’ drink is available in more than 140,000 locations across the country. Meanwhile, convenience store locations increased by an impressive 88% YOY.
It’s clear that Celsius is taking the energy drink market by storm. The Pepsi stake and distribution network support will only help the company grow as it fights to take over market share.
On the date of publication, Eddie Pan held a LONG position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.