Keurig Green Mountain, the privately held coffee giant best known for its ubiquitous K-Cups, is merging with the publicly traded Dr Pepper Snapple Group Inc. (NYSE: DPS), the carbonated beverage giant, in a deal worth $18.7 billion.
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DPS stock owners will receive $103.75 per share in a cash dividend, and will subsequently own about 13 percent of the combined company, to be called Keurig Dr Pepper. The deal is expected to close in the second quarter of 2018.
The $103.75 per share is an 8.5 percent premium to the $95.65 closing price of DPS stock on Friday. Shares, however, rocketed 25 percent higher to trade around the $120 level on Monday, with the surplus value representing the stake in the combined entity.
Keurig Dr Pepper: a strategic powerhouse. Aside from the eponymous ones referenced in the two respective companies’ trade names, the new company merges a number of additional iconic brands, including 7 Up, A&W Root Beer, Hawaiian Punch, Sunkist, Yoohoo and Mott’s.
One of the key benefits of the deal will be the combined company’s powerful distribution network that should unlock more growth opportunities than each company would’ve enjoyed independently. Keurig, which has e-commerce relationships with Amazon.com, Inc. ( AMZN) and Best Buy Co. ( BBY), will complement Dr Pepper Snapple’s strong brick-and-mortar connections with convenience stories and drugstores.
Keurig Dr Pepper (KDP) had 2017 pro forma revenue of around $11 billion. The new soft drink and coffee giant expects to achieve $600 million in annualized synergies by 2021.
JAB Holding Co., the privately held investment firm that owns Keurig, spearheaded the deal. Keurig shareholders will own 87 percent of KDP when the deal closes. JAB, through a number of acquisitions, has amassed an impressive portfolio of consumer brands; it has large stakes in companies like Panera Bread, Caribou Coffee, Peet’s Coffee, Krispy Kreme, Coty ( COTY) and several others.
The firm describes itself as a private group “focused on long-term investments in companies with premium brands, attractive growth and strong margin dynamics,” according to its website.
Keurig CEO Bob Gamgort said that short-term top-line growth for KDP should be somewhere in the neighborhood of 2 to 3 percent, although longer term those numbers should improve as the company prioritizes faster-growth brands and utilizes the newfound strength of its synergies and distribution advantages.
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Owners of DPS stock are no doubt happy about the combination; prior to Monday’s deal, shares were up just 6 percent in the last year. While the acquisition will be highly leveraged, shareholders can expect the new company to deliver over the years, with management targeting a debt/EBITDA ratio below 3 within two to three years of closing.
Gamgort, Keurig’s current CEO, will become chief executive of KDP, with Dr Pepper Snapple President and CEO transitioning to a role on the new company’s board.
“Having a public company currency certainly allows you to be a bit more creative at times,” Gamgort said on CNBC Monday morning, implying that DPS shares, which will continue to be publicly traded after the deal closes, could be utilized — perhaps years down the line — for yet another creative acquisition.
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Distribution Network Powers Keurig, Dr Pepper Snapple Group Inc. (DPS) Deal originally appeared on usnews.com
