More caffeine, please: coffee firm Keurig buys Dr Pepper Snapple
Don’t you sometimes marvel at the stories that are sold to the public to explain a deal’s rationale? The US soft drink maker Dr Pepper Snapple is to merge with coffee company Keurig Green Mountain to form Keurig Dr Pepper. The transaction was announced on 29 January 2018.
Keurig Green Mountain will pay USD 18.7 billion in cash for Dr Pepper Snapple. Observers say Keurig and its majority owner, JAB, are betting that they can create a beverage giant with an estimated USD eleven billion in revenue, and brands such as Keurig’s single-serve coffee pods, Dr Pepper, 7Up and Snapple.
What do the two have in common? Well, both market caffeine beverages amongst others. This does not sound like a convincing rationale, does it? In effect, the transaction is more about creating a large distribution network in the US than anything else.
But as analysts warn: the majority of Dr Pepper’s beverages in the US 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 refuse to stock some of its beverages – say, ready-to-drink coffee brands – on shelves. The uncertainty has left some analysts puzzled by the transaction.
Undeterred, the official spin emphasises that Keurig Dr Pepper is to provide a “total beverage solution,” a combined company that could respond to the shifting tastes of consumers. Increasingly out is a taste for traditional sodas, where Dr Pepper still makes the majority of its sales, and in are healthier, ready-to-drink beverages like tea and juices.
Financially, the deal is structured as a reverse merger. Under the terms of the agreement, Dr Pepper Snapple will issue shares to Keurig Green Mountain’s stockholders to buy the company. As a result, Keurig Green Mountain’s investors will own 87 percent, with Dr Pepper Snapple’s shareholders obtaining a 13 percent stake in the combined company. Dr Pepper Snapple’s shareholders will also receive USD 103.75 per share in a special cash dividend. The combined company will retain Dr Pepper Snapple’s stock market listing but will be controlled by JAB.
Dr Pepper Snapple itself is the product of serial deal-making, principally by Cadbury Schweppes, which bought the Dr Pepper and 7Up assets in 1995 and added Snapple in 2000. Cadbury, the UK chocolate maker that is now owned by Mondelez, spun off the beverage assets and listed them in New York in 2008.
The firm markets over 50 brands of carbonated soft drinks, juices, teas, mixers, waters and other premium beverages.
Keurig Green Mountain is a US-based coffee company, which sells over 400 types of coffee and other drinks that can be made in its brewing machines.
Keurig was the fourth-largest coffee seller in the US in 2017, with 7.4 percent of the market, according to Euromonitor. Dr Pepper Snapple, meanwhile, was the third-largest soft-drink maker, with an 8.5 percent share.
The more fascinating aspect to the deal is this: Keurig’s majority owner is the secretive German Reimann family which orchestrated the takeover through its holding JAB. For tax reasons JAB is headquartered in Luxembourg.
JAB has been on a veritable shopping expedition, expanding both into food and coffee. Only two years ago it bought Keurig for USD 14 billion and merged it with D. E. Master Blenders, a coffee business that JAB had bought from Mondelez International. Last year it acquired the US bakery chain Panera Bread for USD 7.5 billion. The Reimanns also own stakes in UK consumer company Reckitt Benckiser (Nurofen painkillers and Durex condoms amongst others) and a host of cosmetics brands, including Coty and the German shampoo maker Wella.
The Reimann family’s wealth is estimated at EUR 30 billion (USD 36 billion).
German media say that JAB has asked its friends to chip into the Keurig-Dr Pepper Snapple deal by contributing to the “JAB Consumer Fund”. Although JAB is not into revealing its associates, it is common knowledge that in the past Warren Buffett supported JAB’s deal-making, as did Alejandro Santo Domingo (a former SABMiller shareholder, now AB-InBev), the Belgian investor Albert Frère and the Canadian industrialists Desmarais.
