Talk about hyper-caffeinated dealmaking.
Keurig Green Mountain is buying Dr Pepper Snapple (DPS), the companies said on Monday, in a deal that will create a coffee and soda giant that will compete with everyone from PepsiCo (PEP) to Coca-Cola (KO) and Dunkin’ Brands. Combined the companies posted $11 billion in revenue last year.
Dr Pepper investors will get $103.75 a share including a special cash dividend, as well as a 13% stake in the new company that will be controlled by the European Reimann family’s JAB Holding Co. Shares, which closed on Friday at $95.65, rose 41% on Monday morning.
This is only the latest mega-deal in the food and beverage sector by JAB in recent times: the privately held company’s acquisitions in the sector in the last few years have included Panera Bread, Caribou, Peet’s and others that of course include Keurig, which investors led by JAB took private in 2016. The Dr Pepper Snapple deal is expected to close in the second quarter.
The deal “unlocks the opportunity to combine hot and cold beverages and create a platform to increase exposure to high-growth formats,” said Keurig CEO Bob Gamgort. Indeed, carbonated drink makers, including PepsiCo, Coca-Cola and Dr Pepper Snapple, have been trying to reduce their reliance on soda, whose sales industrywide have been in decline for years.
Keurig also said that its performance has improved since going private in March 2016: it claims that 20% of U.S. Households have a Keurig brewer, up from 17% then. The company also said that it has lined up partners that have helped it lower pod prices when needed. The new company, to be called Keurig Dr. Pepper, is looking to have cost savings of $600 million a year by 2021 as a result of more efficient joint operations.
In the Keurig-Dr. Pepper deal, Goldman Sachs was lead financial adviser to Keurig. BDT & Co., AFW LP, J.P. Morgan Securities LLC and Bank of America Merrill Lynch also advised Keurig, while Skadden, Arps, Slate, Meagher & Flom LLP was legal counsel. Credit Suisse advised to Dr Pepper Snapple, and Morgan, Lewis & Bockius LLP provided legal advice.