SodaStream Sale Should Boost Company's Employment in Israel, but Tax Revenue Is Murky

Company CEO Daniel Birnbaum will benefit handsomely, however, from the $3.2 billion sale of the Israeli home carbonated beverage dispenser manufacturer

SodaStream CEO Daniel Birnbaum, left, and incoming PepsiCo CEO Ramon Laguarta
Amir Cohen/Reuters

Monday's news that PepsiCo is buying SodaStream International, the Israeli company that makes carbonate beverage devices for home use, for $3.2 billion was coupled with news that the company would continue to be based in Israel for at least the next 15 years. SodaStream is also expected to open another manufacturing plant in Israel, which should boost the number of employees of the company in Israel from the 2,000 who work for it now. The deal is not expected to result, however, in a major tax windfall for the Israeli treasury.

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Reacting to news of the sale, Prime Minister  Benjamin Netanyahu welcomed the company's commitment to remain in Israel and said the sale demonstrated that Israel was not only a high-tech leader but also a force in the broader business sector. He added that "the giant transaction would enrich the country's coffers."

In actuality, however, the sale is not expected to generate huge tax revenues for the Israeli government. The real boost will be in the form of the new plant and the employment of new workers. Two American investment funds, Fidelity Investments and Renaissance Technologies, which each have less than a 10% stake in SodaStream, are expected to get an exemption, as foreign entities, on their capital gains on the sale, and Israeli institutional investors, who as of the end of March collectively held a roughly billion-shekel ($273 million) stake in the home beverage dispenser company, are also expected to be exempt, leaving the taxes to be paid in Israel on the deal rather fuzzy.

The Israeli treasury's tax take will depend on the stake held by Israeli shareholders (which is not known) and on the individual gains that each of them realizes from the PepsiCo purchase. A rough estimate has it that the sale of SodaStream shares to PepsiCo will generate several hundred million shekels in Israeli tax, including stock options that were provided to employees, which should general about 100 million shekels in tax.

The major beneficiary from the sale will be Daniel Birnbaum, who has been SodaStream's CEO for more than a decade and who received major stock options of his own several months ago, a gesture by the company's board to encourage him to stay on at the company's helm. In May, the company approved giving Birnbaum 160,000 restricted shares in SodaStream, worth $14 million at the time. Some were conditioned on the company's future performance, but now that the entire firm is being sold, Birnbaum's shares will vest immediately.

The price of SodaStream's shares, which are listed on Tel Aviv and the Nasdaq exchanges, has been climbing and is expected to reach $144 when the sale is consummated. At that price, Birnbaum's share options would be worth more than $23 million. And what's more, before the board awarded him the restricted shares, Birnbaum bought $5.2 million worth of shares, in what was seen as his own vote of confidence in the company. In the three months since, he has made $3 million on them.

With reporting by Noa Landau.