Dr Pepper Snapple Group and Keurig Green Mountain plan to merge in a soda-coffee-juice deal that creates a beverage giant with iconic consumer brands and an estimated $11 billion in annual revenues, the companies said Monday.
The deal would create a new public company that brings together famous sodas, juices and teas like Dr Pepper, 7UP, Snapple, A&W, Mott's, Sunkist, and Hawaiian Punch with Green Mountain Coffee Roasters, Keurig's single-serve coffee systems, and more than 75 owner, licensed and partner brands in the Keurig system, including Original Donut Shop Coffee.
The transaction terms call for Dr Pepper Snapple shareholders to receive a cumulative cash payment of roughly $18.7 billion, based on the company shares reported outstanding in late October.
Shares of Dr Pepper Snapple (DPS) rocketed up 24.% to $118.75 in late morning trading. Before the announcement, the stock had been up 5.5% from this time last year.
The combined company, to be called Keurig Dr Pepper, would have roughly $11 billion in pro forma combined 2017 annual revenues, the merger partners said.
The companies have done business before. In early 2015, Keurig signed a multi-year agreement to sell pods of Dr Pepper soda brands for the Keurig Cold system in the U.S. and Canada.
The terms of the new deal call for Dr Pepper Snapple shareholders to receive a $103.75 per share special cash dividend, representing a roughly 8.5% premium over the shares' $95.65 closing price on Friday. They also will retain 13% of the combined company.
JAB Holding, a Luxembourg-headquartered, privately-held company focused on long-term investments in companies with premium brands, acquired Keurig Green Mountainin 2016. It will become the controlling shareholder of the new entity, with JAB, its partners and its management owning 87% of the shares.
The company will be traded on the New York Stock Exchange.
"Having an element of the company that's public while still having an anchored shareholder with incredibly long-term view I think is the optimal combination in today's environment," Robert Gamgort, Keurig Green Mountain CEO, said during a Monday conference call with investors and financial analysts.
Gamgort will head the new corporate entity, joined by Ozan Dokmecioglu, the coffee company's current chief financial officer. Larry Young, president and CEO of Dr Pepper Snapple, will stay on during the transition and will serve on the new company's board of directors.
Gamgort said the companies will continue to operate from their currrent locations: Plano, Texas for Dr Pepper Snapple, and Waterbury, Vt. for Keurig Green Apple.
The transaction marks a new major U.S. acquisition for JAB after one of its investment vehicles acquired Panera Bread for more than $7 billion in April 2017. JAB also controls coffee brands Peet's and Caribou.
Mondelēz International, a U.S. confectionery, food, and beverage company, has a coffee partnership with Keurig and will have a significant stake in the newly combined companies.
The combined companies will have "unrivaled distribution capability to reach virtually every point-of-sale in North America," they said.
The new company is targeting $600 million in synergies on an annualized basis by 2021, the merger partners said.
Dr Pepper Snapple expects to pay its first-quarter regular dividend of 58 cents per share. The new company expects to deliver an annual dividend of 60 cents per share after the deal closes.
Gamgort said during the conference call that the companies project 2017 pro forma earnings per share of $1.27.
"KDP will be a total beverage solution that provides options across all consumer needs and occasions, whether they are at work, at play or on the go," Young said during the conference call. "The combined organization will unlock opportunities for growth across the entire beverage space."
The merger partners complement one another, said Gamgort, because Doctor Pepper Snapples' multi-channel distribution system has been built through a combination of company-owned and partner demand-side platforms, while Keurig Green Mountain has strong distribution capabilities in traditional retail channels, along with strength in e-commerce, office, and hospitality.
The combined company will succeed by shifting from traditional manufacturer to a consumer view based on needs, he added during the conference call. "The new way to win is to offer multiple formats and brands and make them available everywhere our consumer shops," he said.
However, Lauren Rae Lieberman, an analyst with Barclays Capital, asked during the conference call for details explaining what the transaction would do to produce growth "that you weren't really able to access previously."
“The merger comes as a surprise, given the challenges that Keurig had a few years ago with their aspiration to break into the broader (ready-to-drink) category with Keurig Kold,” Vivien Azer, an equity analyst at the financial services firm Cowen, wrote in a research note that referred to the company’s at-home cold-drink maker, which it nixed in 2016.
Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc
