After buying brands from Krispy Kreme to Peet’s and Panera, Keurig turns to soft drinks with big Dr Pepper deal.
JAB Holding’s audacious effort to build a food-and-beverage empire, which already includes Krispy Kreme Doughnuts, Peet’s Coffee, Caribou Coffee and Stumptown, has taken a surprise turn into soft drinks.
The investment firm’s Keurig Green Mountain business, known for its single-serve coffee brewers, agreed Monday to take control of Dr Pepper Snapple Group. The deal will pay $18.7 billion in cash to shareholders and assemble a massive beverage distribution network in the United States, giving JAB’s businesses even greater influence 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 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, 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.
Starbucks, with revenue of $22 billion this past year, competes with some of JAB’s high-end coffee brands and has its own grocery distribution deals with PepsiCo for ready-to-drink beverages.
Combining Keurig and Dr Pepper Snapple 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.
“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.”
Still, it’s not clear how the new company will compete logistically. The majority of Dr Pepper’s beverages in the United States 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, said in a research note.
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 Amazon.com and Best Buy, an area where Dr Pepper 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 Officer 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 United States in 2017, with 7.4 percent of the market, according to Euromonitor International. Dr Pepper Snapple, meanwhile, was the third-largest soft-drink maker, with a 8.5 percent share.
JAB’s other acquisitions included Panera Bread, the Einstein Noah Restaurant Group and Au Bon Pain. Mondelez International — the maker of Oreo cookies and Triscuit crackers — is an investor in Keurig after selling it Jacobs coffee in a 2015 deal and will hold about 13 percent to 14 percent of Keurig Dr Pepper.