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 on Monday to take control of Dr Pepper Snapple Group Inc. The deal will 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 will get $103.75 a share in a special cash dividend and retain 13 percent of the combined business, the companies said. The dividend is about 9 percent above where shares of Plano, Texas-based Dr Pepper Snapple closed on Friday. Existing investors in Keurig Green Mountain will own 87 percent of the new entity.
The deal vaults 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 will be known, will have annual revenue of about $11 billion.
Combining the two entities will let the new company cash in on consumer trends that have drinkers turning away from once-dominant colas, said Bloomberg Intelligence Analyst Ken Shea. Though Dr Pepper has its roots in traditional soft drinks, it has added fast-growing upstart beverages like Bai Brands.
New Benchmark
“It’s a deal that makes a lot of strategic sense,” he 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.”
Dr Pepper climbed as much as 32 percent to $126.65 after the transaction was announced, marking the biggest intraday rally since the shares were listed in 2008. The stock had slipped 1.5 percent this year through the end of last week.
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.
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