Green Mountain shares surged as much as 55 percent in after-hours trading.
The companies have signed a 10-year agreement to collaborate on the development and introduction of Coca-Cola's global brand portfolio for use in Green Mountain's forthcoming Keurig Cold at-home beverage system.
"Together we will be able to capitalize on the many exciting growth opportunities in the single-serve, pod-based segment of the cold beverage industry," Coca-Cola CEO Muhtar Kent said.
Under the agreement, Coca-Cola will acquire 16.68 million newly issued shares in GMCR for approximately $1.25 billion, or about 10 percent of Green Mountain.
Sodastream shares dropped 10 percent following the announcement.
—By CNBC's Karma Allen. Follow him on Twitter @iam_karma.