In latest attempt to break Gatorade’s lock on the sports market, Coca-Cola (KO) announced it is buying a stake in BodyArmor, the sports drink startup backed by Kobe Bryant and other athletes. Commenting on the news, Evercore ISI analyst Robert Ottenstein told investors that it views Coca-Cola’s stake in BodyArmor as a “clear positive” for the beverage giant and a “clear negative” for Gatorade’s owner PepsiCo (PEP) and Keurig Dr Pepper (KDP).

MINORITY STAKE IN BODYARMOR: This morning, Coca-Cola and BodyArmor announced that they have entered into a definitive agreement through which the former will acquire a minority ownership stake in the latter. Under the agreement, BodyArmor will have the opportunity to gain access to the expansive Coca-Cola bottling system, enabling the fast-growing brand to accelerate its growth to meet consumer demand for its premium line of sports performance and hydration drinks. The initial investment is uniquely structured to create value for both companies and allow Coca-Cola to increase its ownership stake in the future under defined terms. Financial terms of the agreement were not disclosed. The BodyArmor investment will be part of the Coca-Cola North America Venturing and Emerging Brands investment portfolio. The brand will continue to operate independently with the same entrepreneurial spirit that has made it so successful under the leadership of co-founder and Chairman Mike Repole and his BodyArmor management team. Through the transaction, Coca-Cola will become the second largest shareowner in BodyArmor, behind Repole.

‘CLEAR NEGATIVE’ FOR PEPSICO, KEURIG DR PEPPER: In a research note to investors, Evercore ISI’s Ottenstein said he sees Coca-Cola’s stake in BodyArmor as a “clear positive” for the beverage giant and its global bottling system and a “clear negative” for PepsiCo, whose market-leading Gatorade product is most at risk, and for Keurig Dr Pepper. BodyArmor was one of the latter’s most important Allied Brands and while Keurig Dr Pepper retains its 12.5% share for now, it loses distribution of the product and any path to ownership it may have enjoyed, the analyst added. Ottenstein argued that with eventual ownership, the Coke System will have the potential to deploy the “classic sandwich” on Gatorade, with Body Amour priced above it and Powerade somewhat below.

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