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PepsiCo will buy carbonated drink-machine maker SodaStream for $3.2 billion as it battles Coca-Cola for an edge in the health-conscious beverage market.

Founded in Britain in 1903, SodaStream was a coveted device in British kitchens in the 1970s and 80s, allowing people to create fizzy drinks by adding flavoured syrups to carbonated tap water, but its popularity faded as bottled sodas became cheaper.

More recently, the Israel-based company reinvented itself as a fizzy water company popular with younger and more health- and environmentally-conscious consumers, who want to drink less soda and use fewer plastic bottles.

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“With sugary carbonates and juices struggling and no turnaround in sight, mitigating the losses through newer and healthier products will be essential for PepsiCo,” said Euromonitor International analyst Matthew Barry.

Euromonitor says bottled water sales saw 6.2 per cent compound annual growth in the five years to 2017, while carbonated soft drinks sales were flat.

The deal announced on Monday may be the last for PepsiCo Chief Executive Indra Nooyi, who will hand over to Ramon Laguarta later this year.

In 12 years as CEO, Nooyi sought to expand PepsiCo’s offering of healthier food and drinks. It agreed to buy Bare Foods in May and KeVita drinks in late 2016.

PepsiCo will pay $144 per share in cash, representing a 10.9 per cent premium to Friday’s closing price of SodaStream’s U.S.-listed stock and a 32 per cent premium to its 30-day average.

SodaStream’s shares were up 9 per cent in Tel Aviv, while its U.S.-listed shares were up nearly 10 per cent. PepsiCo shares were up only 0.3 per cent as analysts questioned whether the deal would move the needle for PepsiCo’s struggling drinks business.

“We remain concerned about challenges facing PepsiCo’s core business and, as such, continue to see limited upside for PepsiCo in the near term,” Wells Fargo analysts said.

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They also noted that the price tag implied a multiple of 33 times forward earnings based on consensus estimates, although a source familiar with the matter said that conventional methods of valuing deals were not best in this instance.

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PepsiCo said SodaStream complements its water business, which includes Aquafina and smaller brands Bubly and Lifewtr. It is attractive because it is growing fast and allows people to customise their drinks, incoming CEO Ramon Laguarta said.

“Clearly, this is all about growth,” Laguarta said, noting that SodaStream would benefit from PepsiCo’s resources in research and development, design and distribution.

Laguarta said PepsiCo had held talks with SodaStream several times in the past but wanted to make sure its business was solid before doing a deal.

A turnaround at SodaStream over the last two years was helped by activist hedge fund manager Teleios Capital Partners, which nominated an external candidate to the board in 2016.

Adam Epstein, co-founder of Teleios, which is the fourth-largest shareholder in SodaStream, said the deal “represents an excellent outcome for all shareholders”.

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SodaStream’s performance improved following a shift in strategy that put more emphasis on sparkling water over soda, and cultivating a loyal user base that continues to use the device after purchasing it.

“Now we are ready to make this commitment,” Laguarta said.

SodaStream’s shares have jumped 85 per cent this year after a 78 per cent increase in 2017. The U.S. shares closed on Friday close to $130, up from $16.31 at the end of 2015.

In the latest second quarter, revenue grew 31 per cent, driven by growth in places including Germany and the United States, while net profit rose nearly 82 per cent.

Still, the notion of creating soft drinks at home has had limited success to date.

Coca-Cola and Keurig Green Mountain forged a partnership in 2015 to market a counter-top cold-drinks machine, but pulled the plug the following year after it failed to take off.

It remains to be seen what Keurig Dr Pepper will do in the space following the merger last month of coffee company Keurig Green Mountain and Dr Pepper Snapple.

New York-based PepsiCo will fund the deal with cash on hand and has committed to keep SodaStream in Israel for at least 15 years.

PepsiCo said the transaction, unanimously approved by the boards of both firms, was expected to close by January 2019.

PepsiCo was advised by Goldman Sachs and Centerview, while SodaStream was advised by Perella Weinberg Partners.

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