- K-Cup maker Keurig will purchase Dr Pepper Snapple
- The soft drink deal is worth $21 billion
- Keurig will become a challenger to Coca Cola and Pepsi
Move over Coca Cola and Pepsi. There’s some new competition in town.
On Monday, Keurig Green Mountain Inc., the maker of K-cup coffee pods, announced it would purchase soft drink maker Dr Pepper Snapple in a deal worth $21 billion, according to Reuters.
Through the merger, Keurig instantly becomes a big challenger in the soft drink market dominated by Pepsi and Coca Cola, and will have annual revenue of approximately $11 billion, Keurig said.
The newly combined company will be called Keurig Dr Pepper. It will own popular brands including 7Up, Snapple, Sunkist, Motts, A&W Root Beer, and Green Mountain Coffee, among many others.
“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,” Bob Gamgort, chief executive officer of Keurig said in a statement.
The merger comes at a time when beverage makers of all kinds are hoping to branch out into drinks with less sugar, including coffees, teas, and sparkling juices, according to analysts. It also comes at a time when Keurig’s owner, an investment group called JAB, is hoping to move beyond fast food and coffee, according to industry reports.
Although the new Keurig will be big competition in the soft drink industry, it is still dwarfed by Coca Cola and Pepsi, which have revenue of $41 billion and $63 billion respectively for the full year 2016, the most recent year for which data is available, according to reports.
What’s reverse merger?
Keurig plans to combine Dr Pepper Snapple in what’s known as a reverse merger. Typically, when companies merge, both entities are either public or private. In this case, Keurig is private and Dr. Pepper Snapple is public. Keurig will essentially become a public company by purchasing the majority of the public company’s shares.
Fun fact: Dr Pepper Snapple shareholders will receive something called a premium to the value of the stock at the time of the deal. A premium is an amount worth more than the current value, meant as an incentive to shareholders who own Dr Pepper Snapple’s stock. Dr Pepper Snapple shareholders will get $103.75 per share, and own 13% of the combined company, Keurig said.
Mergers typically affect stock prices, and news of the deal sent Dr Pepper Snapple Stock up 24% to $118.87 by mid-day Monday, according to Yahoo Finance.*
The deal, which is subject to the approval of federal regulators, is expected to close by the second quarter, Keurig said.
*Source: Yahoo Finance, January 29, 2018