- Dr Pepper Snapple announced Monday it will merge with single-serve home brewer Keurig Green Mountain, creating a new beverage giant with $11 billion in combined annual revenues, the drink companies said in a statement. The new company would bring the popular home brewer and Bai, 7UP, Sunkist and A&W under one roof.
- Under the terms of the agreement, Dr Pepper Snapple shareholders will receive $103.75 per share in a special cash dividend and retain 13% of the combined company.
- “This transaction will deliver significant and immediate value to our shareholders, along with the opportunity to participate in the long-term upside potential of our combined company and attract new brands and beverage categories to our platform in a fast-changing industry landscape," Larry Young, president and chief executive officer of Dr Pepper Snapple, said in a statement.
Under the merger, the companies would combine to create a new blockbuster drinks firm offering both traditional sodas, on-trend coffee drinks and better-for-you beverages under one umbrella. Keurig Dr Pepper will offer a large array of both hot and cold products that people can consume throughout the day — from morning coffee, an afternoon tea to a late-night soda — while accessing a vast distribution system.
The deal is valued at $18.9 billion, excluding debt, The Wall Street Journal said, citing Dealogic. The paper said the purchase exceeds the previous record for a soft-drink acquisition — JAB Holding Co.’s 2015 takeover of Keurig Green Mountain for $13.9 billion.
JAB, which currently owns Keurig Green Mountain, Krispy Kreme, Caribou Coffee, Peet's and Panera Bread, will be the largest shareholder in the new company.
"With Keurig’s acquisition of DPSG this morning, the company now extend their reach across consumer beverage occasions: from the kitchen counter coffee machine, to the café/coffee shop and now into the American supermarket beverage aisle," Howard Telford, head of soft drinks research at Euromonitor International, said in a statement. "The acquisition immediately intensifies competition in two of the most fertile growth areas of US beverages: foodservice consumption and premium, retail brewed beverages (meaning bottled coffee and tea).”
As part of the deal, JAB and its partners will make an equity investment of $9 billion in the newly company. The cash investment could be used by Keurig Dr Pepper to invest in new products and improve equipment and its distribution network in the ultra-competitive, fast-changing beverage space. The new company could give competing soda firms such as PepsiCo and Coca-Cola a run for their money.
While Keurig's brewers boast a 20% U.S. household penetration, and the company has posted improved operating income and margins, Dr Pepper's earnings haven't exactly been overwhelming the market.
The company has been pressed about its $1.7 billion Bai Brands acquisition last year as it has faced challenges integrating the antioxidant superfruit power drink maker. In June, Dr Pepper Snapple announced it replaced Bai founder Ben Weiss with a company insider. Dr Pepper Snapple Group's recent earnings fell 7.4% and market watchers noted soft volume growth in both Bai products and in the company's core packaged beverages.
Consumers have increasingly been turning away from soda and demanding healthier beverage alternatives such as juice, tea, coffee and water. As a result, the beverage industry has had to reformulate products, develop new ones or boost their portfolio by purchasing other brands. Keurig was confident this transaction would allow them to better respond to changes in the beverage space.
“Our view of the industry through the lens of consumer needs, versus traditional manufacturer-defined segments, unlocks the opportunity to combine hot and cold beverages and create a platform to increase exposure to high-growth formats," said Bob Gamgort, chief executive officer of Keurig. "The combination of Dr Pepper Snapple and Keurig will create a new scale beverage company which addresses today’s consumer needs, with a powerful platform of consumer brands and an unparalleled distribution capability to reach virtually every consumer, everywhere."
The merged company also presents serious competition to Nestle and J.M. Smucker in the global coffee market. The Swiss-based Nestle already owns Nescafe and Nespresso and has recently acquired Chameleon Cold-Brew and a controlling interest in Blue Bottle Coffee. Smucker owns Folgers and Cafe Bustelo.
In addition to the benefits realized through a vast distribution network and economies of scale, the combined companies would likely achieve further advantages through Dr Pepper's direct-to-store delivery system and Keurig's existing relationships with online markets and large supermarkets and grocery retailers. Dr Pepper Snapple also could find ways to get more of its beverages into the Keurig platform.
Keurig Green Mountain and Dr Pepper Snapple expect the merger to close by the second quarter. They plan to host an investor's day in March to share further details.