Cans of Pepsi are seen at the PepsiCo Walkers factory in Leicester, Britain, August 14, 2024. REUTERS/Hollie Adams/File Photo

By Anshi Sancheti and Savyata Mishra

(Reuters) -PepsiCo has raised its stake in Celsius Holdings through a $585 million deal, as the global soda and snacks maker strengthens its energy drink business amid shifting consumer preferences.

The popularity of energy drinks has surged among young U.S. consumers seeking low-calorie, vitamin-infused alternatives to traditional sugar-heavy beverages, fueling deals in the sector.

PepsiCo has acquired 5% of Celsius' preferred stock, taking its total stake to about 11% after conversion. It had infused $550 million for an 8.5% stake in 2022.

The company will also nominate a director to serve on Celsius' board.

The deal puts Celsius in charge of the companies' energy-drink portfolio in the U.S., consisting of its Celsius and Alani Nu brands, as well as PepsiCo's Rockstar Energy.

"As PepsiCo's energy captain, Celsius has control over portfolio allocation, planogram design, SKU prioritization, and promotional strategy — giving them greater influence at retail and making them a more formidable competitor in the energy category," Jefferies analysts said in a note.

PepsiCo, which owns Mountain Dew, expanded its energy drink business in 2020 with a $3.85 billion acquisition of Rockstar Energy. It will continue to own the Rockstar brand internationally.

The companies will hold a 20% share in the energy drink category through this partnership, according to Celsius' presentation.

The U.S. energy drinks market was valued at $25.01 billion in 2024 and is expected to grow 7.2% annually through 2030, according to data firm Grand View Research.

The deal also helps the companies compete better in the energy drink category, long dominated by players such as Red Bull and Monster Beverage. Rival Coca-Cola owns a 19% stake in Monster Beverage.

Shares of Celsius were up nearly 4% in midday trading on Friday. They have more than doubled in value this year.

ENERGY DEALS

Beverages makers have been pursuing energy and non-soda brand deals, driven by growing interest in fitness and lifestyle products.

"With regard to wellness-focused beverages. Yes, consumers are gravitating there, and the large beverage companies are following them," said Joseph Gabelli, portfolio manager at Gabelli Funds.

PepsiCo said in March it would buy prebiotic soda brand Poppi for nearly $2 billion to boost its "better for you" product portfolio.

Last year, Keurig Dr Pepper bought a 60% stake in energy-drink maker Ghost for $990 million to spruce up its refreshment beverages portfolio.

Florida-based Celsius had bought peer Alani Nutrition in a $1.8 billion deal earlier this year.

(Reporting by Anshi Sancheti and Savyata Mishra in Bengaluru; Editing by Shilpi Majumdar and Sriraj Kalluvila)