SodaStream CEO Allegedly Profited From Insider Trading

Allegations in lawsuit follow investigation into Birnbaum’s alleged violations of giving information to an associate

SodaStream CEO Daniel Birnbaum
Amir Cohen/Reuters

The allegations that Daniel Birnbaum, the former SodaStream international CEO, helped an associate earn 156,000 shekels ($44,500) in insider profits on the company’s stock captured the headlines when news of it surfaced last month.

Birnbaum is alleged by Israel Securities Authority investigators to have given Ayala Sara Cohen advance information on corporate earnings and the impending deal by PepsiCo to buy SodaStream.

The U.S. beverage giant announced in August 2018 it would buy SodaStream at $144 a share, a 32% premium on the shares’ average price in the month beforehand.

But the allegations against them involve much less money than the sums Birnbaum is alleged to have earned with insider knowledge, according to lawyers seeking to file a class action suit.

The petition, filed last April with Tel Aviv District Court Judge Khaled Kabub, alleges that Birnbaum bought and sold SodaStream shares in the months before the PepsiCo deal. It also questions the decision of SodaStream’s board to allocate stock and options to Birnbaum in June 2018, just weeks before the PepsiCo deal was announced.

Birnbaum bought stock in SodaStream, the Israeli maker of carbonated-beverage machines, once in May 2018 and again in June 2018 at prices on average of $87 and $84, respectively. All told, he bought 70,000 shares for a total of $6 million, attorneys Jacob Sabo, Hagai Kalai and Ohad Rosen say in court papers

In addition, SodaStream’s chief financial officer, Daniel Erdreich, is said to have bought 1,000 shares for a total of $86,000. The two then sold the shares after the PepsiCo acquisition was announced, earning them $4 million and $58,000, respectively.

Birnbaum today is chairman of PepsiCo’s SodaStream unit.

At the time, Birnbaum’s purchases were seen as a vote of confidence in SodaStream, which he had led as CEO since 2007, when it was bought by the Israeli private equity fund Fortissimo for just $6 million. PepsiCo bought SodaStream 11 years later for $3.2 billion.

But the court papers allege that at the start of 2018, SodaStream began discussions with an unnamed investment fund about being acquired. The talks did not lead to an agreement but they had proceeded far enough for SodaStream to retain outside advisers.

“The matter was known to Birnbaum, the board of directors and perhaps even to other respondents [to the suit] – but it was not disclosed to the public, which was unaware of it,” the suit says.

Moreover, it asserts, the defendants “have never made a straightforward disclosure regarding the merger deal, its stages and dates, and at this stage there is a great deal of latitude regarding the timetable of contacts between it officers and PepsiCo.”

In addition to the share purchases, the suit takes aim at a decision taken by SodaStream’s board in June 2018 to approve an allocation of restricted and performance-based shares to Birnbaum as well as options to a group of executive, board members and senior employees with a strike price of $86.

SodaStream said it offered the bonuses as an incentive to keep Birnbaum, who is credited with turning the company around, at the company and because a previous program that had been approved three years earlier had expired.

However, the plaintiffs said the bonuses were offered at a time when the board knew the company would shortly be posting excellent second-quarter earnings and that negotiations that would result in the PepsiCo deal were well underway.

Furthermore, argue the plaintiffs, a company shouldn’t be allocating options to employees and if it does so, not under terms that allow them to vest so quickly.

The suit asks the court to order 11 defendants to return the profit they are alleged to have earned illicitly. Kabub is now examining the petition.

Meitar Liquornik Geva Leshem Tal, the firm representing the defendants, has said it has not comment on the suit.