Stock soars on merger news
Dr Pepper Snapple’s (DPS) stock price soared 22.4% to $117.07 on January 29 in reaction to news that it would be merging with Keurig Green Mountain to create a new entity, Keurig Dr Pepper. The new beverage company will bring popular brands such as Dr Pepper, 7 Up, Snapple, A&W, Mott’s, Sunkist, and Green Mountain Coffee Roasters under one roof.
Keurig makes specialty coffee and single-serve brewing systems. It was acquired by an investor group led by JAB Holding Company in March 2016. Keurig’s product portfolio includes about 75 owned, licensed and partner brands. Mondelēz International (MDLZ), which was also a part of the investor group that acquired Keurig, is to hold a 13%–14% stake in Keurig Dr Pepper.
Terms of the transaction
The merger transaction, which is valued at ~$19 billion, is said to be one of the largest deals in the soft drink space. Dr Pepper Snapple shareholders are to get a special cash dividend of $103.75 per share. Upon closure of the deal, Keurig shareholders are to hold 87% of Keurig Dr Pepper, and Dr Pepper Snapple shareholders are to hold a 13% stake in the new company.
The formation of the new company, which is expected to generate ~$11 billion in annual revenue, is likely to intensify competition in the non-alcoholic beverage space. Beverage giants Coca-Cola (KO) PepsiCo (PEP) both saw their stock fall 1.7% on January 29.
The transaction is expected to be completed in 2Q18, subject to approval by Dr Pepper Snapple shareholders and regulatory authorities. Let’s discuss this deal’s synergies in the next part of this series.