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PepsiCo nears deal to acquire probiotic drinks company KeVita - sources

Cans of Pepsi are displayed at the Roland Garros stadium in Paris, France, May 28, 2016. REUTERS/Jacky Naegelen/File Photo

By Lauren Hirsch (Reuters) - PepsiCo Inc is nearing a deal to acquire sparkling probiotic U.S. drinks company KeVita Inc, people familiar with the matter said on Thursday, in the latest push by the carbonated beverage giant to diversify its soft drinks business. The deal would be PepsiCo's first outright acquisition through its venture arm dubbed Naked Emerging Brands, whose mission is to expand the company's portfolio of sugary drinks by developing brands that appeal to health-conscious consumers. PepsiCo already owns a minority stake in KeVita, and has a distribution agreement with the Oxnard, California-based company, the people said. The acquisition of KeVita could be finalized as early as this month, and will likely value the privately held company at less than $500 million, the people said. There is always a possibility that the negotiations end unsuccessfully, the people cautioned. The sources asked not to be identified because the negotiations are confidential. PepsiCo and KeVita declined to comment. Carbonated beverages sales have softened in recent years, as consumers seek calorie-free alternatives to sugary drinks. Several U.S. cities have introduced a so-called 'soda tax' on sugary drinks, or are seeking to do so. KeVita sells drinks that include sparkling probiotics, master brew kombucha tea, and vinegar tonics. Probiotics, proponents say, help aid digestive and immune health. KeVita was founded in 2010 by Chakra Earthsong, a nutritional consultant, and her friend, entrepreneur Bill Moses. They combined Earthsong's at-home water kefir ferment with Moses's winemaking fermentation knowledge. The company has also received investments from private equity firms KarpReilly LLC and SPK Capital LLC. Early minority investments in companies such as KeVita allow PepsiCo and rival Coca-Cola Co to familiarise themselves with a startup before buying it outright, as only a small percentage of new drink concepts take off. These investments also usually come with distribution agreements, which allow the bulging brands to grow. When these startups find their footing and prove their business plan, they will often consider selling outright. Earlier this month, Reuters reported that antioxidant beverage company Bai Brands LLC, in which Dr Pepper Snapple Group Inc owns a minority stake, is exploring a sale that it hopes will value it at more than $2 billion. PepsiCo's existing healthier offerings include Naked Juice and O.N.E Coconut Waters. (Reporting by Lauren Hirsch in New York; Editing by Bernard Orr)