Dr Pepper Snapple, Keurig Green Mountain to combine to create coffee, soda giant
Dr Pepper Snapple Group and Keurig Green Mountain plan to merge in a soda-coffee-juice deal that creates a beverage giant with iconic consumer brands and an estimated $11 billion in annual revenues.
For soft drink fanatics who also need a coffee fix in the mornings, a big deal announced Monday will cover all their beverage needs.
Dr Pepper Snapple Group is merging with Keurig Green Mountain to create beverage giant with an estimated $11 billion in annual revenues, the companies said.
The deal brings together some of the soft drink and juice world's best known names — Dr Pepper, 7UP, Snapple, A&W, Mott's, Sunkist and Hawaiian Punch — with Green Mountain Coffee Roasters, Keurig's single-serve coffee systems, and more than 75 other brands connected to the Keurig system, including Original Donut Shop Coffee.
The combined company will be called Keurig Dr Pepper. Together, the two companies hope their combined heft will give them more leverage in the marketplace.
"KDP will be a total beverage solution that provides options across all consumer needs and occasions, whether they are at work, at play or on the go," said Dr Pepper Snapple CEO Larry Young, who plans to stay on during the transition and will serve on the new company's board of directors. "The combined organization will unlock opportunities for growth across the entire beverage space."
Transaction terms call for Dr Pepper Snapple shareholders to receive a cumulative cash payment of roughly $18.7 billion, based on the company shares reported outstanding in late October.
Shares of Dr Pepper Snapple (DPS) rocketed up more than 22% to close at $117.07 on Monday. Keurig Green Mountain is owned by an investment group led by JAB Holding, a Luxembourg-headquartered, privately-held company.
The companies have done business before. In early 2015, Keurig signed a multiyear agreement to sell pods of Dr Pepper soda brands for the Keurig Cold system in the U.S. and Canada.
Terms of the new deal call for Dr Pepper Snapple shareholders to receive a $103.75 per share special cash dividend, representing a roughly 8.5% premium over the shares' $95.65 closing price Friday. They also will retain 13% of the combined company.
The new company will be traded on the New York Stock Exchange.
"Having an element of the company that's public while still having an anchored shareholder with incredibly long-term view I think is the optimal combination in today's environment," Robert Gamgort, Keurig Green Mountain CEO, said during a Monday conference call with investors and financial analysts.
Gamgort will head the new corporate entity, joined by Ozan Dokmecioglu, the coffee company's current chief financial officer.
Gamgort said the companies will continue to operate from their currrent locations: Plano, Texas, for Dr Pepper Snapple, and Waterbury, Vt., for Keurig Green Mountain.
The transaction marks a new major U.S. acquisition for JAB after one of its investment vehicles acquired Panera Bread for more than $7 billion in April 2017. JAB also controls coffee brands Peet's and Caribou.
Keurig is partnering with Anheuser-Busch InBev for its latest attempt to branch out from coffee. Video provided by Newsy
The merger partners complement one another, Gamgort said, because Dr Pepper Snapples' multichannel distribution system has been built through a combination of company-owned and partner demand-side platforms, while Keurig Green Mountain has strong distribution capabilities in traditional retail channels, along with strength in e-commerce, office and hospitality.
The combined company will succeed by shifting from traditional manufacturer to a consumer view based on needs, he added during the conference call. "The new way to win is to offer multiple formats and brands and make them available everywhere our consumer shops," he said.
However, Lauren Rae Lieberman, an analyst with Barclays Capital, asked during the conference call for details explaining what the transaction would do to produce growth "that you weren't really able to access previously."
S&P Global credit analyst Chris Johnson said the two companies joining forces will let them reduce their business expenses and overlap due to scale, plus it sets up better distribution channels for both, like if Keurig chose to put more attention into selling bottled drinks.
In September, McDonald's announced a partnership with Coca-Cola to sell ready-to-drink McCafé Frappé drinks, and in February, Dunkin' Donuts launched a line of bottled coffee drinks. Bottled Starbucks chilled Frappuccino drinks were first sold in 1996.
"The intent is to become a larger beverage company and become a more clear leader (like) Coca-Cola and Pepsi," he said of the merger news.
And don't expect any 7UP-flavored K-cups. Johnson said he doesn't expect to see cross-branding like that.
“The merger comes as a surprise, given the challenges that Keurig had a few years ago with their aspiration to break into the broader (ready-to-drink) category with Keurig Kold,” Vivien Azer, an equity analyst at the financial services firm Cowen, wrote in a research note that referred to the company’s ill-fated, pricey at-home cold-drink maker.
Keurig Kold was introduced in 2015 as a way for consumers to make single-serving carbonated beverages, like flavored seltzer and soda, including Coca-Cola drinks. The company discontinued the $370 machine the following year.
CFRA Research analyst Joseph Agnese maintained a hold recommendation on Dr Pepper Snapple and raised a 12-month target on the company's shares by $34 to $125.
Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc