Dr Pepper Snapple Group Inc. (DPS) and Keurig Green Mountain Inc. announced Monday, Jan. 29, plans to merge into one company to be billed as Keurig Dr Pepper.
Dr Pepper Snapple shareholders will receive $103.75 a share in a special cash dividend and retain 13% of the combined company, the two firms said in a joint statement. Keurig will take over a controlling 87% stake, and the 13% owned by Dr Pepper shareholders will be traded publicly. The new company is expected to rake in $11 billion in annual revenue.
Dr Pepper Snapple stock surged 32% to $126.39 at the opening bell on Monday.
The newly formed Keurig Dr Pepper, which leadership among the companies is calling "the new challenger in the beverage space," will bring together the likes of Mott's, Sunkist and 7UP with coffee brand Green Mountain and the more than 75 owned, licensed and partner brands in Keurig's portfolio.
The new KDP is targeting $600 million in synergies on an annualized basis by 2021. Dr Pepper Snapple expects to pay its first quarter ordinary course dividend of 58 cents a share. At the close of the transaction by the second quarter of this year, the company expects to deliver an annual dividend of 60 cents a share.
Mondelez International Inc. (MDLZ - Get Report) will have a significant stake in the new company due to a previous partnership with Keurig Green Mountain. JAB Holding Co., which acquired a then-public Keurig in March 2016, will make an equity investment of $9 billion to finance the transaction.
Bob Gamgort, current CEO of Keurig, will serve as chief executive of the combined company and Ozan Dokmecioglu, current chief financial officer of Keurig, will serve as its chief financial officer. Dr Pepper Snapple President and CEO Larry Young intends to transition to a role on KDP's board to "help the new management team realize the full potential of the company," the companies said.
"We need to view the market through a consumer lens if we want to see opportunities for innovation and growth," Gamgort said on a call Monday following the announcement of the deal. He explained that there is no longer traditional segment definition in the beverage market. Consumers don't just drink coffee in the morning or soda in the afternoon, but rather, they drink beverages from all manufacturer definitions throughout the day.
Gamgort noted that KDP is the first company to provide hot and cold beverages at scale and intends to serve as a leader in industry consolidation.
While most beverage companies have struggled to find their place in a growing e-commerce environment and the Amazon.com Inc. (AMZN - Get Report) age, "Keurig has developed a significant and growing e-commerce business," Gamgort said.
"The new way to win is to offer multiple formats and brands and to make them available anywhere our consumers shop," Gamgort added. That means KDP products will be everywhere from Target Corp. (TGT - Get Report) and Kroger Co. (KR - Get Report) stores to Best Buy Co. (BBY - Get Report) and CVS Health Corp. (CVS - Get Report) locations.
Goldman Sachs served as the lead financial adviser for Keurig and Credit Suisse served as the lead adviser for Dr Pepper Snapple. The company is targeting $16.6 billion of total net debt at closing and said it is "committed to maintaining" an investment grade rating.
KDP will hold an investor day in mid-March to give more details on the deal.
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