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From the Super Bowl to the Interrogation Room: What Is Daniel Birnbaum Facing

From the Super Bowl to the Interrogation Room: What Is Daniel Birnbaum Facing

SodaStream’s former CEO came out a winner after the company’s $3.2 billion acquisition by PepsiCo last year. Now he is at the heart of an insider trading investigation, and the implications could be severe

Sophie Shulman and Tomer Ganon | 17:41  25.09.2019
Israeli at-home water carbonation products company SodaStream International Ltd. is known for tapping A-list celebrities for its buzz-worthy ad campaigns. But for the past 12 years, the company’s real star has been its CEO, Daniel Birnbaum. When it was revealed Tuesday that Birnbaum is the top SodaStream executive at the heart of an insider trading investigation, it created a buzz that the company’s marketing team—and Birnbaum himself, no doubt—would have been happy to avoid.

Throughout the day, SodaStream employees arrived at the Israel Security Authority’s offices to give testimony, among them Birnbaum’s successor Eyal Shohat. The Tel Aviv district court released Birnbaum on bail of NIS 1.2 million (approximately $342,000) and has also forbidden him from leaving the country for 180 days. Among the suspicions against him are allegations of fraud and breach of trust.

SodaStream SodaStream's former CEO Daniel Birnbaum. Photo: Amit Sha'al SodaStream

The allegations state that soon before the PepsiCo acquisition Birnbaum provided a close acquaintance who was also a former employee with significant information that has not yet been shared with investors.

According to the legal documents, which were viewed by Calcalist, Birnbaum provided his former employee with information on three occasions, leading her to buy stock ahead of the official announcements that bumped the stock’s valuation up. One was an August 20, 2018 report about the PepsiCo acquisition. PepsiCo paid $3.2 billion, or $144 per share, for SodaStream’s entire stock. The second was an August 1, 2018 report about the company’s strong second-quarter results. The former employee made use of the information to make a total profit of NIS 156,000 (approximately $42,440 at the time) on the stock exchange. Another incident was right before the company published its annual report for 2016 on February 15, 2017, which netted her a profit of NIS 28,000 (approximately $7,420 at the time).

Birnbaum was brought to SodaStream, then Soda Club, by Israel-based private equity firm Fortissimo Capital Management when it acquired the company in 2007. Within a little over a decade, he turned an $8 million investment into a $3.2 billion exit. PepsiCo, one of the largest companies in the industry—and one of those most affected by SodaStream confrontational tactics—agreed to pay that entire sum in 2018, in cash

Birnbaum, credited as the architect of that amazing deal, is now suspected of being unable to hold in the good news. In August, just weeks before the investigation was made public, Birnbaum resigned as CEO and was appointed as chairman, a largely ornamental position now that SodaStream is a private company. Some have speculated Tuesday that when the move was announced, PepsiCo was already aware of the investigation.

Birnbaum should have exited SodaStream triumphant, but it is now apparent he will not be able to rest on his laurels or devote much time to his new investments, medical cannabis companies Seedo (listed as Eroll Grow Tech Ltd.) and Cannbit Ltd. On Tuesday, people connected to Seedo, speaking with Calcalist on condition of anonymity, said the company expects him to resign from his position on Seedo’s board of directors. “We are certain Daniel will not put the company in an improper situation,” one person said.

If the investigation ends with a fine, it could be said that Birnbaum will have gotten off easy, as he made around $60 million from the PepsiCo acquisition thanks to his shares and options. He was also the recipient of an annual salary of around $3 million. In addition, Birnbaum was eligible for a $34 million bonus—$4 million in cash, $10 million over a three-year period, and another $20 million dependent on milestones. The terms of the bonus do not mention anything about different resignation scenarios for Birnbaum, beyond him being required to stay at least three years to receive the full sum. It has currently been less than a year.

There is also a worse possibility—a criminal conviction and significant damage to his shiny image. Birnbaum is regarded as a leader and visionary who doesn’t hesitate to make his opinions known even if they are less and less popular in Israel’s current political climate.

Beyond his business acumen, Birnbaum is known as a CEO admired by his employees, an active participant in company events and employee celebrations. Thanks to those characteristics, Birnbaum has also been perceived as an honest man, a dedicated family man who frequently brings up his four children and his wife and her musical career in conversation.

“Birnbaum is a very smart man, even a sharp man,” one person who has worked with Birnbaum closely for years told Calcalist on condition of anonymity. “No matter their ethnic background or political leaning, SodaStream’s employees just worship him.”

A similar sentiment is conveyed by an acquaintance who has known Birnbaum since his time at Nike Israel. “He boosted Nike’s sales after years of stagnation. When he announced he was leaving for SodaStream there was somewhat of a grieving period.”

Despite that, Birnbaum’s biggest success to date is, without a doubt, SodaStream. “Birnbaum completely changed how people regard the product,” said one person close to Birnbaum on condition of anonymity. “No one wanted it and now it has a similar status to an espresso machine on the kitchen counter.”

Birnbaum recognized the growing environmental and health-conscious sentiments and adapted the old soda siphon to fit. He managed to sell SodaStream devices to giant U.S. chains like Target and Walmart, and even infiltrated the bourgeois stronghold of Bed Bath and Beyond. As someone with a keen understanding of American culture, he provided an annual incentive in the form of Super Bowl ads, the most memorable being a 2014 commercial starring Scarlett Johansson. In that same commercial, SodaStream aimed such a direct barb at PepsiCo and Coca Cola that Fox refused to stream the commercial, which ended with “sorry Coca Cola and PepsiCo.” That refusal created the buzz SodaStream was aiming for, perhaps helping PepsiCo understand that it needed to bring the company into its fold.

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Birnbaum’s legal representation, advocate Yuval Sasson, declined to comment.

The former employee’s legal representation, advocate Liran Silberman, stated that the allegations against his client are initial suspicions and that he is confident an investigation will prove she did not act unlawfully.

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