Keurig Green Mountain (Keurig), a specialty coffee and coffee maker company, agreed to take control of Dr Pepper Snapple Group Inc (Dr Pepper), a soft drinks company, with the objective to create a North American beverage company of scale, with a sophisticated distribution system. The deal will be structured as a reverse merger and the combined entity will be named Keuring Dr Pepper (KDP).
Keurig is a leader in specialty coffee and innovative single-serve brewing systems (K-cup pods). The company sources, produces and sells coffee, hot cocoa, teas and other beverages in portion packs under various brands and also sells coffee beans and ground coffee.
Dr Pepper is a leading producer of flavoured beverages in North America and the Caribbean. The Company was spun off from Britain’s Cadbury and operates as a standalone entity since 2008. The Company’s product portfolio consists of carbonated and non-carbonated soft drinks, ready-to-drink teas, juices, juice drinks, and mixers.
The combined company will cover all consumer beverage needs, joining together recognized brands Dr Pepper, 7UP, Schweppes, Snapple, A&W, Mott’s and Sunkist with leading coffee brand Green Mountain Coffee Roasters and more than 75 other brands in the Keurig system, creating a “total beverage solution” for retailers. Keurig’s e-commerce business, coupled with Dr Pepper’s well-established distribution network, could deliver the brands of the combined company to customers everywhere they shop. Merging the two companies would create an upscale beverage company with a revenue of $11 Bn with exposure to high growth market segments. According to both CEOs, coffee is currently one of the fastest growing segments in the beverages industry and Dr Pepper’s carbonated soft drinks business delivers the scale and infrastructure to take Keurig’s coffee brands to all consumers. The deal could boost the share of the combined company in coffee as well as soft drinks. According to Euromonitor International, Keurig was the fourth-largest coffee seller in the US in 2017, with 7.4% of the market and Dr Pepper the third-largest soft drink maker, with 8.5% market share.
KDP expects to realize $600 M in synergies (annualized) by 2021 and generate stronger cash flow. It also plans to accelerate its deleveraging to a target Net Debt/EBITDA of below 3.0x within three years after closing the deal. The deal is valued at $18.7 Bn. Dr Pepper’s shareholders will receive $103.75 per share in special cash dividends and will end up owning about 13% of the combined entity. At closing, the combined company’s pro forma debt balance is estimated to be $16.6 Bn. Transaction closing, which is subject to regulatory approval, is expected in the second quarter of 2018.
