Dr Pepper Snapple, Keurig Green Mountain to Merge

Dr Pepper Snapple Group Inc. and Keurig Green Mountain Inc. have entered into a definitive merger agreement to create Keurig Dr Pepper, described by the businesses as “a new beverage company of scale with a portfolio of iconic consumer brands and unrivaled distribution capability to reach virtually every point of sale in North America.”

Under the terms of the deal, which was unanimously approved by the Dr Pepper Snapple board of directors, that company’s shareholders will receive $103.75 per share in a special cash dividend and retain 13 percent of the merged company, while Keurig shareholders will hold 87 percent.

KDP will have pro forma combined 2017 annual revenues of about $11 billion, joining together the Dr Pepper, 7UP, Snapple, A&W, Mott’s and Sunkist beverage brand with the Green Mountain Coffee Roasters brand and the Keurig single-serve coffee system, in addition to 75-plus owned, licensed and partner brands in the Keurig system.

“This transaction will deliver significant and immediate value to our shareholders, along with the opportunity to participate in the long-term upside potential of our combined company and attract new brands and beverage categories to our platform in a fast-changing industry landscape,” said Larry Young, president and CEO of Plano, Texas-based Dr Pepper Snapple. “We are excited to combine with Keurig to build on the rich heritage and expertise of both companies and provide the highest-quality hot and cold beverages to satisfy every consumer throughout the day.”

“Our view of the industry through the lens of consumer needs, versus traditional manufacturer-defined segments, unlocks the opportunity to combine hot and cold beverages and create a platform to increase exposure to high-growth formats,” added Bob Gamgort, CEO of Burlington, Mass.-based Keurig. “The combination of Dr Pepper Snapple and Keurig will create a new scale beverage company which addresses today’s consumer needs, with a powerful platform of consumer brands and an unparalleled distribution capability to reach virtually every consumer, everywhere. We are fortunate to have talented leadership teams within both companies, and I look forward to working together with the Dr Pepper Snapple team to make this combination a success for all of our stakeholders.”

JAB Holding Co., a Luxembourg-based global investment firm, and its partners, will jointly make an equity investment of $9 billion as part of the financing of the deal. When the transaction closes, JAB will be the controlling shareholder. Mondelēz International, JAB’s partner in Keurig, will hold an approximately 13 percent to 14 percent stake in the combined company. Keurig became a private company when it was acquired by a JAB-led investor group in March 2016.

“We are very excited about the prospect of KDP becoming a challenger in the beverage industry,” noted Bart Becht, partner and chairman of JAB and chairman of Keurig. “Management’s proven operational and integration track record along with their commitment to innovation and potential future brand consolidation opportunities, while maintaining an investment grade rating, positions the company well for long-term success and material shareholder value creation.”

Dirk Van de Put, CEO of East Hanover, N.J.-based Mondelēz International, observed, “We have been very pleased with our coffee partnership with Keurig, and strongly support the strategic rationale for this transaction. We look forward to continuing to participate in the compelling value-creation and long-term growth opportunities inherent in this powerful beverage platform.”

According to the companies, their complementary portfolios, access to high-growth segments of the beverage industry and shareholder value-focused management team will enable KDP to achieve sustained growth via continued innovation, brand consolidation opportunities and higher household penetration for its leading brands. KDP expects to realize $600 million in synergies on an annualized basis by 2021.

Gamgort will become CEO of the combined company, and Ozan Dokmecioglu, currently CFO of Keurig, will become KDP’s CFO. Young will transition to a role on KDP’s board of directors to help the new management team, drawn from the management teams of both companies, realize the combined company’s full potential. Becht will become board chairman, while Gamgort will serve as an executive member.

Keurig and Dr Pepper Snapple will continue to operate out of their current locations, with Gamgort based in Burlington.