In this episode of Market Foolery, Chris Hill and Motley Fool employee Jason Moser receive some of the biggest stories on the market. First and foremost, happy merger Monday! Pepsi (NASDAQ: PEP) just swallowed up SodaStream (NASDAQ: SODA) for about $ 3.2 billion. The hosts tell what this could mean for the soda giant in an era of dying pop, why the timing of this deal was probably not the best, and why some analysts are skeptical about the merger.
Also, Adidas (NASDAQOTH: ADDYY) cooperated with twitter (NYSE: Twtr) to live-stream high-school football – a team effort that benefits both companies. And oh, sad day: rumors pop up from a buy-out on the horizon for the Cajun chicken chain Bojangles (NASDAQ: BOJA). The fast food industry only remains brutally difficult to forge. Would this be the best? Vote for more information.
A complete transcript follows the video.
This video was recorded on August 20, 2018.
Chris Hill: It is Monday, August 20. Welcome to Market Foolery! I am Chris Hill. Sign me up in studio, Jason Moser. Are you ready?
Jason Moser: I'm ready. Hey, listen! I was ready at five o'clock this morning. I got up to take my mother back to the airport. I saw this news clearly and early.
Hill: I woke up with e-mails from listeners who said, "You're going to talk about that, right?" Yes. We have news about restaurants, and we have news about sports media, but it's a Monday fusion and of course we're starting with the news that Pepsi SodaStream is buying for the cool $ 3.2 billion. Pepsi pays $ 144 per share. It was a very good year for the SodaStream shareholders. It started the year with just under $ 70 per share.
Moser: That is a lot of seltzer. SodaStream has a very interesting, let us just look at the past five years. In the past five years the stock has been on a bit of a roller coaster. Recently it has certainly made a comeback here. I think you should generally appreciate the trend that this is playing for Pepsi because of the head-wind soda faces. Also, I think this fight against waste, excess plastic bottles, what not, this is really what SodaStream is fighting. It gives you that device in your home that you can make your seltzer. And they have really focused on making your own soda for a while. But because soda has more or less become a pariah, they are now focused on just saying: "Hey, you can still make seltzers and flavored waters and whatever." I think that, considering Indra Nooyi's overall view of things, I think she likes these kinds of messages. Combating obesity and consumption of soft drinks and combating waste with plastic bottles.
I feel like I … I do not know. They buy SodaStream at the very top. I can not help but feel that in a few years we will see a great deal of goodwill written by Pepsi.
Moser: I mean, I feel like they should probably write something about this. This is not a cheap deal, anyway. They really get SodaStream at the height of a recovery. With whatever challenges they might face in the coming years, I think the shares have progressed a bit in their own right, if you consider that it really is a European play. It is a play about Western Europe. Not so much on the US
Hill: It will be interesting to see if there is an enumeration. I had a similar thought. I love the move, Indra Nooyi goes out with a bite of a mic drop, packing her 12 years as CEO. I like the deal. The thing I asked was not so much: "Wow, they buy this at the top of SodaStream." I mean, yes, that's the truth. But I also saw it as: "Boy, it's not like they just started working with SodaStream." That's why, I think, if you're a Pepsi shareholder, even if you like this deal, you have to ask the question, what could have been. They have been working with SodaStream for years, and especially if they had been looking forward to getting a deal on this deal a year ago, you should remember that they pay at least a billion dollars less. So that's the only thing. I do not know. I think we can make a cup of coffee if something is written down or not. I like the move, but considering how long Pepsi has worked with SodaStream, that's where you're going: "Boy, if they had bought this …" they might have gotten this thing for a billion dollars, maybe two years ago.
Moser: Yes, that certainly feels that way. I mean, we love these models with razor blades and blades. You have a company that sells a device or a device, and then you have to continue to fill that device or thing with something that is specific to that device. I look at the Neat Green Mountain computer versus the SodaStream. There are some similarities there. Certainly, we have seen how successful the Keurig has been. I think it's a bit of a simpler device to use, the Keurig. I think the Keurig probably has a longer life here on most worksheets, at least in the interior. I think that's the reason, it's the device and then the pod, right? You do not really have to make a new jump there. With the SodaStream this is the device and it is the gas cartridge. And then you either have to add your taste, or you just get your water. But what I've found in using the SodaStream that we have here at work, which, by the way, just sits here and now collects dust – it does not seem to carve as well as, perhaps, some of the seltzers you could buy in the store. I felt that if we bought a SodaStream machine, only dust would eventually be collected. And I love seltzer. I mean, I drink a lot every day.
Again, this is mainly a game in Western Europe. We have seen that here, SodaStream, is not getting so much grip right now. That does not mean that it will not go any further. Sure, Pepsi has a huge distribution network where they can pull some more levers and possibly get this thing in more houses and lower prices and find new ways to earn money. I think it is ultimately something that fits very well into their model. It's just, wow, they pay a lot for it.
The advantage is that it is all cash on the balance. They had the money to do it. It's just a takeover that they make, and then Nooyi can drive into the sunset and say, "Hey, guys, do it right, see you soon."
Hill: [laughs] "Go ahead and knock out." Adidas is working with Twitter to start livestream high school football games from next month. This is in a series they call Friday Night Stripes, I assume because they would be brought to justice if they gave it a name Friday night lights. I'm curious what you think of this. This seems like a small victory for both Adidas and Twitter, with perhaps slightly more upside potential for Adidas.
Moser: Yes, I think you're probably right. I like this kind of deals. I think they are generally win-win for both parties involved. I think Adidas gets the brand name that really matters, and Twitter gets a chance to demonstrate its usefulness for a younger target group. We talk about these networks, whether it is Twitter or Snapchat or Facebook, you have to demonstrate tools for a wide cross-section, right? We're trying to see if Snapchat can demonstrate that tool for the older audience. Twitter, I think they really have to figure out how they can stay relevant to that younger audience. One way to do that is to continue to throw content that many people like.
I actually like, in their video strategy, a bit of the Netflix& # 39; S. The reason why I say that is because they tend to want to cast a very broad network and show a lot of different things that are a little bit of something for many people. I'm probably not going to watch Middle Atlantic lacrosse, but there are plenty of people who will. Football in high school, it is interesting to note that this is going to be something that spans the country. It will make the best high school teams play in the country. This will also become pretty interesting content for football fans.
The incremental costs for Twitter to do this, modest at best. This is something they can really use that infrastructure they have already built and proven. Offer them the opportunity to earn, probably, on the advertising side. Adidas gets the brand recognition. I think it's a win-win, easy bet.
Hill: To go back to the Netflix equation, you must assume that a part of Twitter's thinking here is similar to Netflix's in this regard: "Well, if we get people to try this, we can hopefully let them stay. " With Netflix you can create buzz-worthy shows –Orange is the new black, House of cards, one of the shows that Netflix has done. The same kind of things. It's like: "If we can get people on our platform for this one show, they might be stuck." In the case of Twitter they are smart. This is not only the high school football of the United States, it is also in the whole country. The same kind of things. "If we can get people on Twitter, just to view this platform, we might be able to keep them."
Moser: Yes, and it is not exclusive for logged-in users. These are logged in, logged out users. You can still get this content. I think there are a number of advantages attached to this. That really gives you the biggest potential audience you have. Moreover, it not only gives you the chance to register new users, but I think it helps them to keep that conversation away from this monthly active user number or even the daily active user number.
Really, just show that broad network that Twitter has, where people will see that content everywhere. You may not be a Twitter user, but if you watch TV, chances are you will see a lot of Twitter content that happens to you.
With sport that is a good vertical for Twitter. We have seen the impact it has when they stream the NFL games and there is a lot of potential there. It will not be one big deal that really makes it out of the park for these guys. I think it will be a lot of these small deals that help companies at the other end of the transaction to find that brand exposure, and are looking for Twitter as a unique and good fit for the content they are trying to get there.
Hill: I mentioned listeners who emailed about the Pepsi-SodaStream story. I must thank Lee Watson, a listener who has posted this story in our Facebook group – which everyone can follow if you are on Facebook. Motley Fool Podcasts. Thanks to the Charlotte Observer, a story about Bojangles, your beloved Bojangles –
Moser: The jang!
Hill: – close to poorly performing restaurants, resulting in a number of menu items, all leading to the speculation that Bojangles could prepare for a sale. When I saw that head, I thought, "Well, wait a minute." And by the time I finished reading the story, I thought to myself: "You know what, I think this is the way to gamble right now."
Moser: I think you're probably right. When Bojangles became public, the first question I had when the company became public … I mean, trying to separate my personal feelings for the Cajun filet cookie with the real company itself …
Hill: [laughs] Besides, we laugh about that, we make jokes about that, but your experience there, that is something that many of us as investors have to do – separate our own personal experience, which can be great or terrible, and the reason to invest in a share can be the opposite of what our own experience is.
Moser: Absolutely! In many cases it can be. I think this is one of the more difficult lessons to learn as an investor, and one of the more valuable lessons you can learn and you can continue to follow the rest of your investment life. When it comes to Bojangles, the # 1 question I had was: does this company need anything, does the brand have what it takes to reach beyond its typical southeastern identity? And the answer, I think, here, is really no. They have failed to use this concept across the country and to grow to the extent that they thought they could in the S-1 that they submitted when they became public. I mean, I can not say that I'm terribly surprised about that. In the same way I wish they could. [laughs]
I do feel that there are sufficient opportunities for the product they sell. But it is also a very busy market. You have KFC there, you have Popeye & # 39; s Chicken. Restaurant brands owns Popeye & # 39; s Chicken and Yum! owns KFC. Then you have Bojangles here on its own. I think for a while, while we might have hoped that Bojangles would make it on his own, in the back of my mind, I knew it was probably eventually taken over by someone and part of a larger company. That is how most of these restaurants now have to work. It is very difficult to do it alone in the food service business, especially fast food, the market in which they compete.
The chances of being taken over are probably better now. There are a number of different ways that they can go. Inspire Brands is the favorite favorite to bring them into the family. Inspire now owns Buffalo Wild Wings and Arby's. Inspire is a company owned by Roark Capital, located in Atlanta. I finally checked that Atlanta is pretty familiar with that Bojangles brand, so it would not shock me to see that happen.
It is such a tough undertaking to compete against, especially if you are new and put your feet underneath. We saw the same things with Zoës last week when we saw it Zoes (NYSE: Zoes) taken over by Cava. I think that was logical too. Zoës is not a small, unimportant concept, but it is simply very difficult to get out and compete, especially if you can not let that brand grow nationwide.
Hill: Although, to go back to Zoës, you just look through the lens of the stock, Zoës Kitchen, which shares were crushed. Shareholders have a complete lifeline in the Cava Group to buy them out. Shares of Bojangles, for whichever struggle they are going through, the shares have so far increased by 20%.
Moser: Yes, but it has not been a great public life. The stock is lower than the IPO. Investing is always a matter of when you step in. Anyone who entered Bojangles at the beginning of the story probably feels that the investment did not go as well. But maybe there is some light at the end of the tunnel. Maybe there's a bit of a premium they're going out. I do not think it is unreasonable to think that they will be taken over at a given moment. Bojangles has been around for many years. It is not as if it is only a concept that fails. It is simply a concept that is very difficult to grow alone. There are many companies, private and public, that want a brand that really tackles a part of the country. And when you can get brands like that and perform efficient operations, franchising activities like Bojangles are in many cases immensely profitable.
Hill: Last week further Motley Fool Money, one of the things we were talking about JC Penney, how they still do not have a CEO. I was reminded that I read this story in the Charlotte Observer about the abrupt dismissal of the Bojangles CEO in March. They now have an interim CEO. Why, is that the thing to watch with Bojangles? Barring an announcement from someone who comes to buy them, it seems an announcement about the CEO, whether it is the interim CEO that is now made permanent, or we have found a new CEO, it seems that this is the next best idea will be from the future of Bojangles.
Moser: Yes, but I mean, I do not know that it's going to mean something in some way at the end of the day. If they get someone there on a more permanent basis, in any way, I'm sure that the person who ultimately gets that job comes on a permanent basis with their three- or four-step plan and how they focus on revolutionizing brand and things change. And we know that often, those are just things they have to say, right? We are not going to hire a CEO just to go there and tell us how bad we are. We want the CEO to tell us how things will get better.
Maybe there is a chance that they are making something official. But my guess is, given the equity, given the interest of the VC owner for Bojangles, as it is today, there is a majority stakeholder trying to achieve the best return on their investment. They will pull a lot of the strings anyway.
Hill: And the market capitalization is currently about $ 500 million. You have to assume that if they are paid, they will not receive SodaStream money.
Hill: [laughs] No. We always talk about that 30% premium and whatever that means. I think that might be a rule of thumb. I would absolutely not buy Bojangles shares on an acquisition slip. It can happen very well, but if that is not the case, then you have this struggling restaurant concept that does not really have a strategy and does not really have a leader who is married to the success of this company so far. .
If you get a CEO there who announces a CEO on a more permanent basis, then you might have something to fall back on. That comes back to why we talk so much about leadership. Really, leadership can make a difference in the world. McDonald & # 39; s was a great example. You had Don Thompson who jumped in. And I mean, he had a lot of experience with the company. He was COO for a number of years. And he had a year and he could not let anything work. And then you get Steve Easterbrook there, that guy can not do anything wrong. He brought McDonald's back from the dead. Often it simply comes down to leadership.
Hill: We are not optimistic about the stock of Bojangles. However, we are optimistic about breakfast.
Moser: Extremely. And they are too! That is just 40% of their business. That is still a problem, really, believe it or not. When so much of your business depends on breakfast … breakfast is also a very competitive space. We have already seen it. It is hard to fight.
Hill: As Ron Swanson said, there has never been a sadness that can not be cured by breakfast food.
Moser: I agree 100%.
Hill: Jason Moser, thank you for being here!
Moser: Thank you!
Hill: As always, people on the program can have interests in the shares they talk about, and The Motley Fool can have formal recommendations for or against, so buy or sell shares not just based on what you hear. That's what it's going to do for this edition of Market Foolery. The show will be mixed by Dan Boyd. I am Chris Hill. Thanks for listening! See you tomorrow!