Keurig to take control of Dr Pepper Snapple in $18.7-billion deal

Dr Pepper Snapple has ties to convenience stores, drugstores and beverage vendors, while Keurig has relationships with e-commerce companies and tech sellers.
(Jim Cole / Associated Press)

JAB Holding Co.’s audacious effort to build a food-and-beverage empire, which already includes Krispy Kreme Doughnuts and Caribou Coffee, has taken a surprise turn into soft drinks.

The investment firm’s Keurig Green Mountain Inc. business, known for its single-serve coffee brewers, agreed Monday to take control of Dr Pepper Snapple Group Inc. The deal would pay $18.7 billion in cash to shareholders and assemble a massive beverage distribution network in the U.S., giving JAB’s businesses even greater control over how Americans eat and drink.

Dr Pepper Snapple shareholders would get $103.75 a share in a special cash dividend and retain 13% of the combined business, the companies said. The dividend is about 9% above where shares of Plano, Texas-based Dr Pepper Snapple closed Friday. Existing investors in Keurig Green Mountain would own 87% of the new entity.

Dr Pepper Snapple shares jumped 22.4% on Monday to $117.07. The stock had slipped 1.5% this year through the end of last week.

The deal would vault JAB into competition with the likes of Coca-Cola Co. and PepsiCo Inc., bringing a stable of brands that includes 7Up lemon-lime soda, A&W root beer and Mott’s apple juice. Keurig Dr Pepper, as the new company would be known, would have annual revenue of about $11 billion.


JAB, which is backed by the billionaire Reimann family, has been placing increasingly bold bets on food and drink businesses. At the same time, it has shifted away from fashion holdings such as Jimmy Choo.

Strategic rationale

The combined company would be able to cash in on consumer trends in which people are turning away from once-dominant colas, said Bloomberg Intelligence Analyst Ken Shea said. Although Dr Pepper Snapple has its roots in traditional soft drinks, it has added fast-growing upstart beverages such as Bai Brands.

“It’s a deal that makes a lot of strategic sense,” Shea said. “Once it gets going and they can deliver on some of the bold things they’re talking about here, this will be a really important benchmark that investors will use to compare Coke and Pepsi against.”

Still, it’s not clear how the new company will compete logistically. The majority of Dr Pepper’s beverages in the U.S. are distributed through Coca-Cola’s and PepsiCo’s bottling and sales networks. That could create barriers for Keurig Dr Pepper if the bigger companies refused to stock some of its beverages — say, ready-to-drink coffee brands — on shelves. The uncertainty has left some analysts puzzled by the transaction.

“We have yet to be fully convinced about the strategic rationale behind the merger,” Ali Dibadj, an analyst at Sanford C. Bernstein & Co., said in a research note.

Sales network

A big selling point of the deal is building a distribution network across the beverage industry. Keurig has relationships with e-commerce companies and tech sellers, including Inc. and Best Buy Co., an area where Dr Pepper Snapple isn’t as strong. Dr Pepper Snapple, meanwhile, has ties to convenience stores, drugstores and beverage vendors.

“Combined, our nationwide distribution system will be unrivaled,” Keurig Chief Executive Bob Gamgort said on a call with analysts.

That could boost market share for the new combined company in coffee and other soft drinks. Keurig was the fourth-largest coffee seller in the U.S. in 2017, with 7.4% of the market, according to Euromonitor International. Dr Pepper Snapple, meanwhile, was the third-largest soft-drink maker, with an 8.5% share.

The deal — which is expected to close next quarter but still needs approval from Dr Pepper Snapple shareholders and from regulators — would be structured as a reverse merger. Dr Pepper Snapple would be renamed Keurig Dr Pepper upon closing, and it would issue shares to Keurig Green Mountain’s stockholders to buy the company. As a result, Keurig Green Mountain’s investors would own 87% of Keurig Dr Pepper.

Goldman Sachs & Co. served as lead financial advisor to Keurig. BDT & Co., AFW LP, J.P. Morgan Securities and Bank of America Merrill Lynch also advised the coffee company, while Skadden, Arps, Slate, Meagher & Flom LLP served as legal counsel. Credit Suisse Group was financial advisor to Dr Pepper Snapple, and Morgan, Lewis & Bockius LLP provided legal advice.

Industry veterans

JAB, run by consumer-goods industry veterans Peter Harf, Bart Becht and Olivier Goudet, has transformed the fast-food and drink industries with a series of acquisitions that grew from a 2013 deal for the owner of Douwe Egberts coffee. That business was combined with Mondelez International Inc.’s Jacobs coffee in 2015.

Other acquisitions included Panera Bread Co., the Einstein Noah Restaurant Group, Peet’s Coffee & Tea, Stumptown Coffee Roasters and Au Bon Pain. Mondelez — the maker of Oreo cookies and Triscuit crackers — is an investor in Keurig as a result of the 2015 deal and would hold about 13% to 14% of Keurig Dr Pepper.

Food over fashion

Meanwhile, JAB has moved to divest its luxury holdings. It sold stiletto shoe maker Jimmy Choo to Michael Kors Holdings Ltd. and jacket brand Belstaff to chemical company Ineos. Shandong Ruyi Group of China is the leading bidder for Bally International, the Swiss leather-goods brand owned by JAB, according to people familiar with the situation.

Dr Pepper Snapple itself is the product of serial dealmaking, principally by Cadbury Schweppes, which bought the Dr Pepper and 7Up assets in 1995 and added Snapple in 2000. Cadbury, the British chocolate maker that is now owned by Mondelez, spun off the beverage assets and listed them in New York in 2008.

Wolfson and Pfanner write for Bloomberg.


4 p.m.: This article was updated with the stock’s closing price and analyst comments.

This article was originally published at 7:50 a.m.