Keurig has agreed to acquire Dr Pepper Snapple Group Inc. in a deal that will see the two companies merge into a combined global entity to be called Keurig Dr. Pepper (KDP) with annual revenue of $11 billion.
The deal, which is valued at more than $21 billion, will result in a massive North American public beverage giant including the brands Dr Pepper, 7UP, Green Mountain Coffee Roasters, the Keurig single serve coffee system, Snapple, A&W, Mott’s Sunkist, Hawaiian Punch, along with 75 licensed partner brands of Keurig.
Under the terms of the deal, Dr Pepper Snapple shareholders will receive a per share price of $103.75, or approximately $18.7 billion, and will retain a 13 percent share of the company.
Meanwhile, Luxembourg-based JAB Holding, which acquired Keurig for $13.9 billion in cash and took the company private in late 2015, will be the majority shareholder of KDP.
JAB manages the $16 billion fortune of the Reimann family of Austria. The firm is headed by three consumer-industry executives – Peter Harf, Bart Becht, and Oliver Goudet, according to the Wall Street Journal – which reported at the time were planning to gain a position within the global market from which to challenge the coffee industry leader Nestle SA. JAB already owns controlling stakes in Jacobs Douwe Egberts, Peet’s Coffee & Tea, Caribou Coffee, Einstein Noah Restaurant Group, Espresso House, and Baresso Coffee.
JAB has contributed $9 billion to help finance the transaction, and food giant Mendelez is also a significant stakeholder in KDP with between a 13 and 14 percent holding due to its 24.2 percent stake previously held in Keurig. Mondelez, however, has stated that it does not plan to commit any further capital into the 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,” said Larry Young, president and CEO, Dr Pepper Snapple. “We are excited to combine with Keurig to build on the rich heritage and expertise of both companies and provide the highest-quality hot and cold beverages to satisfy every consumer throughout the day.”
A Strategic Move
For Dr Pepper Snapple, the move to integrate and secure a share of the coffee market through Keurig is strategic.
Demand for coffee in the U.S., the biggest coffee market in the world, is on pace to reach a new record, driven by increased consumption by younger drinkers. Millennials aged between 19 and 34 account for 44 percent of U.S. coffee consumption, according to Datassentials. And despite consumption dropping from 76 percent to 64 percent for people 60 years and older, and consumption falling for those between the ages of 40 and 59, the jump in demand by younger coffee drinkers has more than made up for the shift.
Meanwhile, soda sales fell to a 30-year low in 2015 and last year as consumer trends continue to shift away from high-sugar drinks. And Dr Pepper Snapple is not the only soft drink giant to take notice of these trends. In July 2016, Coca-Cola, already a soda, water, and energy drink giant, announced it was entering the coffee sector in Brazil, and in September 2017, Nestlé announced it had agreed to acquire Blue Bottle Coffee for approximately $425 million.
“From Dr Pepper Snapple’s (DPS’) perspective at this time it makes a lot of sense,” Josh Blechman, director of capital markets at Exponential ETFs, which owns shares of Dr Pepper Snapple told Reuters. “They needed to diversify their business line from sugary drinks, so I think that this is a really good deal.”
For Keurig, the tie-up represents an opportunity for growth through achievement of scale, the expanded reach between both hot and cold beverage categories, access to Dr Pepper’s distribution network and its healthier drink options including Fiji Water, Vita Coco, and Bai.
“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, CEO 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.”
Moving forward, Gamgort will assume the role of CEO of KDP, while Keurig CFO, Ozan Dokmecioglu, will act as CFO and Larry Young, president and CEO of Dr Pepper Snapple, will assume a role on the KDP board of directors to oversee the transition.
After closing, which is expected to occur in the second quarter of the year, both Keurig and Dr Pepper Snapple will continue to operate from their headquarters in Waterbury, Vermont, and Plano, Texas.
-Lynda Kiernan